Gordon Brown’s possible responsibility for one of the key decisions that precipitated the Northern Rock crisis emerged over the weekend, as a bureaucratic dispute erupted over the Market Abuse Directive (MAD) that Mervyn King cited on Thursday as a significant reason why he was unable avert the run on Northern Rock.

On Thursday the Governor of the Bank of England told the Commons Treasury Committee that “we were unable to carry out a lender-of-last-resort operation in the way we would have done in the 1990s, as a result of the 2005 Market Abuse Directive”.

Mr King’s comments focused attention on the European Commission’s apparent role in the crisis, because Brussels required Britain to introduce the MAD in 2005.

Last Friday, however, the Commission seemed to contradict Mr King. To prove that there was no legal obligation on Northern Rock to disclose either, the Commission quoted exemptions for actions by public authorities and for companies “in grave or imminent danger”.

In response to this guidance from the Commission, the Bank stated: “We had robust legal advice that in this case the support operation could not be done covertly”, a contradiction that raised the possibility that the Bank’s lawyers might have triggered the crisis by being overcautious or had made a serious mistake.

Over the weekend, however, another possible explanation came to light – with equally serious political implications.

The British version of the MAD was considerably tougher than the Brussels draft. If the Bank’s legal advice is disclosed, it could well turn out that the obstacles that prevented a resolution of the Northern Rock crisis were created by British civil servants who had decided to toughen up the EU proposals – a process known as “gold-plating”.

Mr Brown had been campaigning against such gold-plating of EU directives, but in this most dangerous case, it appears that the gold-plating was done by his own senior civil servants at the Treasury, just when he was promising businessmen that he would stop the practice once and for all.

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