Mervyn King emerged somewhat bloodied but unbowed from the Treasury Select Committee. He could have been clearer in his explanations and focused more narrowly on the legislative issue that has to be addressed to avoid another Northern Rock debacle — the need for a modern system of deposit insurance, which would guarantee savings up to a sensibly high limit, such as £100,000. By expatiating instead on the complex interactions between four separate legislative problems — deposit insurance, company law, insolvency law and the EU Market Abuse Directive — he risked confusing the issues and sounded like a defendant in court reeling off a laundry list of possible alibis and excuses.

Worse, from the Bank of England’s viewpoint, was the performance of Mr King’s supporting cast. This suggested that the classic bureaucratic response to serious bungles may actually be the right one in the case of Northern Rock: “Deputy heads must roll”.

Sir John Gieve, the Deputy Governor in charge of financial stability, suffered a far worse mauling than his boss. As the Bank’s ex-officio representative on the board of the Financial Services Authority, he was supposed to be the Bank’s eyes and ears in the markets. It appeared from his testimony, however, that he was unaware of Northern Rock’s specific problems until they were formally brought to the Bank’s attention.

More bizarrely, he seemed to consider that, as a “non-executive director”, all he had to do was keep an eye on the general state of the markets, and it was not part of his duties to press the FSA’s line managers about any individual banks that might be threatened by the financial turmoil that began in late July.

The idea that non-executive directors do not have to inform themselves about the specific actions of senior managers, even when these touch on the integrity of the entire organisations they run, would be welcome news to the directors of any public company that gets into trouble, such as Equitable Life or indeed Northern Rock.

Unfortunately for the directors, who have in many cases faced personal ruin as a result of these companies’ actions, it is simply not true. Non-executive directors are supposed to have a detailed understanding of the organisations they are overseeing, especially in times of crisis. Sir John should have been intimately aware of the FSA’s negotiations with Northern Rock, and also with any potential bidders, not just in August, but all the way back to July and before.

Moreover, he should have been reporting back about these problems to the Bank of England and making sure that the FSA’s decisions were consistent with the Bank’s monetary actions and vice versa. The idea that the governor, not to mention the Bank’s Monetary Policy Committee, had to wait for a formal memo from the FSA in mid-August before they could even think about Northern Rock’s specific problems suggests a breakdown in communications of a quite alarming degree.

Sir John should have been the principal linkman between the two organisations. His position now looks extremely vulnerable.

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