Alistair Darling personally blocked a £30 billion rescue attempt by Lloyds TSB on Northern Rock, Mervyn King, the Bank of England Governor, disclosed today.

The revelation means that the Chancellor was in full possession of the financial facts about the struggling mortgage lender at least a week before he publicly intervened to protect savers and borrowers.

It also means that Mr Darling was in a position to facilitate a bailout of Northern Rock well before the run on the bank in mid-September which virtually ensured that it would have to be sold or broken up.

And it marks a big shift of the pressure over responsibility for the Northern Rock affair from the Bank of England to the Treasury.

BACKGROUND

• Darling’s tax reforms put City off Labour

• Business leaders scorn Darling's tax U-turn

• Darling hints at capital gains tax rethink

• Darling slams FSA over Northern Rock fiasco

Three-way system failed the big test

The board of Northern Rock must take full responsibility for the bank’s financial dependency on the capital markets

BACKGROUND

• Brown in the hot seat over Northern Rock advice

• Brilliant economist took his eye off the ball

• Ten days that shook the City

• Bank chief under fire over crisis ‘flip-flop’

Declaration of independence

The Bank of England is the victim of a whispering campaign

Related Links

• Full transcript of Mervyn King's interview

• Savers pull £14bn from ailing Rock

• Barclays slides on 'emergency funding' fears

The Conservatives immediately seized on comments made by Mr King, claiming that things were now "all looking a bit bleak" for the Chancellor, who has already run into controversy over his plans for a flat rate of capital gains tax and his U-turn on the size of guarantees for bank depositors.

George Osborne, the shadow Chancellor, said: “An increasingly embattled Chancellor today faces these two serious questions. First, why did he ignore the recommendations of the Governor of the Bank of England to introduce new legislation that could have prevented the run on Northern Rock?

"Second, why did he reject the approach from Lloyds TSB that would have averted the crisis, when he was forced to offer the very same guarantee a week later? People are beginning to question Alistair Darling’s ability to do the job.”

It was previously thought that Mr King, whose job has been on the line over Northern Rock, took the decision to block a rescue because of Lloyds TSB's terms.

In an interview with BBC Radio's File on 4 programme to be broadcast today, Mr King said that he had told Mr Darling that clearing or blocking a Northern Rock takeover was "a matter for Government".

Mr King and the Bank have said that they "recognised the advantages of a takeover" of Northern Rock, although they rejected the preferential loan rate terms demanded by Lloyds TSB in exchange for the rescue.

He said that the Bank, part of the Tripartite Authorities, which include the Treasury and the Financial Services Authority, concluded it was a decision that it could not make.

"I said to the Chancellor: 'This is not something which a central bank can do'," Mr King said.

"They don't normally finance takeovers by one company for another, let alone to the tune of £30 billion, which is rather a large amount of money."

The rejection of Lloyds TSB's offer for Northern Rock meant that the Tyneside mortgage bank had to seek emergency funding from the Bank of England.

The news that it had done so sparked panic among its account holders and led to the first run on a UK bank for more than 100 years.

Mr Darling did not publicly intervene to provide assurances to Northern Rock customers until the end of the weekend in mid-September on which the bank run took place.

The Treasury played down the Lloyds TSB approach, describing as it as informal general approach. A spokesman said: “As the Chancellor made clear to the Treasury Select Committee on October 25, at no stage was the Government approached with a substantive proposition for Northern Rock that required state support.

“Instead there was a general inquiry as to whether the Bank of England might provide commercial banking facilities of up to £30 billion at non-penalty rates for up to two years, in the same way as an investment bank.

“In any event this general inquiry was not followed up with any detailed proposal.”

In the interview, Mr King gave his support to Mr Darling. "I thought the Chancellor was extraordinarily successful in giving what reassurance he could give. At that point he didn't know how far he could go in giving a government guarantee," Mr King said.

Northern Rock is the object of several takeover bids, including one from Sir Richard Branson's Virgin Group conglomerate and JC Flowers, an American investment group.

Northern Rock is the biggest British casualty so far of the international credit crunch.

Mr King said that it would be months before banks returned to normal.

He said: "I think most people expect that we have several more months to get through before the banks have revealed all the losses that have occurred, and we have taken measures to finance their obligations that result from that, but we are going in the right direction."

Times Recommends

• Minister in talks with Saudis to protect creditors
• Premier Inn hits back in £29-a-room row
• Bankers hit back at 'populist' bonus supertax