What we have seen on the high streets in the past few days – a run on a bank – is precisely what the financial regulatory system is designed to avoid.

So regardless of the fact that this crisis originated in the US mortgage market, the Northern Rock rescue will rattle confidence in the governance of the British economy. It will test the credibility of the Bank of England, the Treasury and the Financial Services Authority. It will undermine the public’s already shaky faith in corporate governance and capitalism’s capacity to police its own excess. And it threatens to dent the reputation of Gordon Brown, whose chief boast has been a record of stability and prudence.

David Cameron, the Conservative leader, was quick to capitalise politically, blaming the Brown Government for fostering a culture of public and private debt. To be clear, Northern Rock’s problems cannot be blamed on the politicians. It built a business model that was designed for an era of cheap and easy money. When that era came to an abrupt end this summer and financial institutions, spooked by the bad debts in the sub-prime mortgage market, suddenly switched off the lending tap, Northern Rock was faced with a wall of payments it could not meet. But, of course, the Government bears responsibility for the response to its near-collapse.

Mervyn King, the Bank of England Governor who famously likes to be boring, has become the most controversial figure in banking and finance. He has sought to be firm and fair, which may be a sound strategy for a schoolmaster but sends a mixed message when coming from a central banker.

On the one hand, the Bank has made clear that it wants to avoid the moral hazard of lending to bleating financial institutions and, thereby, rewarding banks for their bad behaviour in taking on risks that they could not afford. On the other, it has stepped in to bail out Northern Rock, essentially writing a blank cheque to a bank that failed to factor in the possibility of a crisis in the credit markets and now has £24 billion-plus in potential liabilities. More than that, the Bank said that it would support mortgage lenders who find themselves in similar straits.

Mr King has acted to meet the Bank’s dual responsibilities: fending off inflation and ensuring financial stability. The Government’s decision to stop Northern Rock from collapsing was probably right. But as the evidence emerges that Northern Rock was in negotiations with potential commercial buyers, notably Lloyds TSB, there will be questions about why the Bank stepped in at all. Mr King has also acted in near-silence. Unlike his counterparts at the European Central Bank and the US Federal Reserve, Mr King has said almost nothing over the past months in the financial markets. This has been deliberate. The Bank has not wanted to provide the wordy reassurances that can, in times of uncertainty, only stoke anxiety.

Nonetheless, Mr King and his colleagues have struggled to communicate beyond the Square Mile. When the Bank provided emergency funds for Barclays last month, Barclays was sworn to secrecy. As the news seeped out, the intervention that was designed to help Barclays instead did significant damage to its reputation.

The Northern Rock crisis also presents a serious challenge to the new Chancellor, Alistair Darling. The Treasury was party to the decision to bail out Northern Rock, which happened just a couple of days after Mr Darling called on banks to take responsibility for their lending decisions.

Within the City, there will also be questions about the way the relatively new triumvirate of regulators – the Bank, the Treasury and the FSA – work together. By giving the Bank of England its independence and creating a separate regulatory body for the financial sector, the Government split its expertise in capital markets. And, as a result, some senior bankers in the City have wondered out loud whether the Bank has lost its touch in fast-moving financial markets.

Britain’s system of financial regulation is one of the Prime Minister’s proudest achievements. Mr Brown is well aware that a financial crisis can sap not only consumer, but voter, confidence. Until now, even economic uncertainty has played to Labour’s advantage: polls show that, by a margin of two to one, the public has greater confidence in the economic stewardship of Mr Brown and Mr Darling than Mr Cameron and George Osborne. Northern Rock may change that equation.

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