Credit crisis: The Bank's £10bn U-turn

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The Independent Online

What a difference a week makes.

Mervyn King said in a letter to the Treasury Select Committee on 12 September that the Bank of England was not poised to inject extra cash into the money markets to bring down the rates at which banks borrow from each other. The Governor of the Bank dismissed calls to intervene, saying it could "encourage herd behaviour and increase the intensity of future crises".

But that was before the extraordinary run on Northern Rock.

In a major U-turn last Wednesday, Mr King announced that the Bank would inject £10bn into the markets.

The following day, he faced MPs on the committee and explained his volte-face by suggesting it was in the interests of the wider economy to restore stability to the money markets.

A decision on whether Mr King will be appointed for a second term as Governor will be taken in the coming weeks. Major banks are known to be angry over what they see as the Bank's inaction during the turmoil.

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