Brown jumps to defence of BoE's Mervyn King

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The Independent Online

The Prime Minister, Gordon Brown, yesterday defended the Governor of the Bank of England and the Government's banking regulations after a week when both came under fire from MPs.

Mervyn King, the Bank's Governor, withstood a grilling by the House of Commons Treasury Committee on Thursday over his handling of the credit crunch and the Northern Rock crisis.

Most people thought Mr King's position was more secure after the meeting but he came in for sharp criticism.

"Mervyn King has been a brilliant Governor of the Bank of England," Gordon Brown said yesterday.

Mr Brown appointed Mr King when he was Chancellor in 2003. Mr King's stewardship of monetary policy had won widespread praise until inflation spiked earlier this year. The banking industry has complained about his handling of the credit crunch, reaching a peak on Wednesday when he reversed his previously hard-line stance and agreed to inject £10bn of liquidity into the money markets.

Mr King's term as Governor ends in June and Mr Brown and the Chancellor, Alistair Darling, can decide whether to re-appoint him any time before then.

His deputy for financial stability, Sir John Gieve, came in for particular criticism from MPs at the session last week.

Mr Brown also defended the system of banking regulation, which he introduced in 1997 shortly after Labour came to power. He transferred banking supervision from the Bank of England to the Financial Services Authority.

The system has come in for criticism during the credit crunch, following the collapse of the sub-prime mortgage market in the US, with banking industry figures and politicians questioning whether the authorities had worked together properly during the crisis.

Mr Brown said he was "very proud" of the system and that it had worked well, though he said he was open to the idea of reviewing the banking rules to make them work better.

Mr King told MPs last week that the system was correct but that a rescue of Northern Rock had been prevented by failings in different pieces of legislation that had interacted to stop him from arranging discreet funding that would not have caused panic among customers, and would have settled the nerves of the market.

Mr Darling has said he would consider increasing the amount of depositors' money guaranteed for repayment to £100,000 from £32,000.

He was talking on the BBC's Andrew Marr Show.