Mervyn King, Bank of England (BoE) governor, told the Treasury select committee today banks should put ‘many billions’ of pounds into a depositor protection fund planned under new legislation with lenders contributing according to their risk level.

He stressed the scheme should be at least partly pre-funded and not rely on banks putting up the money after a financial disaster had happened. The governor also indicated BoE should have the power to initiate emergency measures to rescue failing banks, the Guardian reports.

‘We will not have the right to initiate the trigger,’ King said. ‘We will have the right to make a written recommendation to the FSA so that they pull the trigger. That's clearly not the same thing.’

King said BoE would have acted a lot sooner to save Northern Rock if it had been given the power to use the proposed special resolution scheme. ‘That bank would have been dealt with immediately under a special resolution scheme,’ he said. ‘It couldn't be because nationalisation was the only alternative. We certainly would have handled it differently.’

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