Mervyn King is Governor of the Bank of England and Chairman of the Monetary Policy Committee.

Bank of England Governor Mervyn King said today that British and European Union laws complicated plans to rescue Northern Rock Plc and prevented the Bank from acting covertly to prevent a panic.

``We're hemmed in by four pieces of legislation,'' King told the House of Commons Treasury Select Committee in London today. ``The interaction between different pieces of unconnected legislation made it almost impossible for us to act as a lender of last resort in the way that I would prefer.''

King's credibility was called into question following the Bank of England's decision on Wednesday to lend £10 billion to commercial banks in an emergency three-month auction and also widen the range of securities it accepts as collateral.

A week ago Governor King had said that widening the collateral accepted by the central bank or offering money for ``longer periods'' would risk ``moral hazard'' - in effect bailing out investors who made bad bets. The bank's move came after the rescue of Northern Rock, the UK's fifth biggest home loans lender, last Friday.

In an editorial today, the Financial Times comments: Since the Northern Rock rescue began last Friday, official handling of the crisis has been marked by muddle, indecision and disunity. Poor communication when the rescue was launched, the delay in guaranteeing Northern Rock deposits, and now this belated liquidity operation add up to an incoherent response to the crisis.

It is not clear what the latest intervention is meant to achieve. The Bank will offer three-month liquidity at a penalty of at least 1 per cent above its base rate, an offer that will only appeal to banks in difficulties. Northern Rock could have used this a week ago, but Northern Rock has now been dealt with. The move would only make sense to the extent that it protects banks similar to Northern Rock, but it risks creating the fear that another such case is out there. Circumstances may have changed fundamentally but the authorities will need to show that at some point.

King's comments today in attributing the confusion surrounding the rescue of Northern Rock to the byzantine regulatory regime, could be viewed as putting Prime Minister Gordon Brown in the line of fire. The former Chancellor of the Exchequer was responsible for developing the UK's current financial regulatory framework and approved the rules governing banks.

``There is clearly a regulatory failure, not just in the U.K. but around the world as well,'' Willem Buiter, a former Bank of England Monetary Policy Committee member who is now at the London School of Economics, said in an interview. ``The fact that banks have such needs at the moment is because the banks have played the field with such reckless abandon in the past few years. The chickens are coming home to roost.''

King said UK company takeover rules make it impossible for regulators to organize the quick sale of a failing bank. He said an EU banking law implemented in 2005 prevented covert lending to support Northern Rock, requiring authorities to announce when a loan has been made.

``How do we get a situation where the effort put into rescue Northern Rock is the equivalent of screaming fire in a crowded cinema?'' asked John McFall, the Chairman of the Cmmittee, who is a member of the governing Labour Party. ``Everybody rushes for the door, all as a result of one company having a bad business model.''

King said the ``bank would have preferred to have acted covertly as lender as last resort, to have lent to Northern Rock without publishing it. As a result of the market abuses directive (of 2005) we were unable to carry that out.''

``The real problem facing Northern Rock was that the asset side of the balance sheet suddenly became highly illiquid,'' King said. ``In one form or another, Northern Rock required as a backstop a lender of last resort. The natural place to look was the central bank.''

Earlier today, the Bank of England said it will offer additional funds to the financial system today and widen the reserves that banks can draw from this month.

The Bank will lend £4.4 billion pounds of extra funds as part of a weekly money-market operation, it said in a statement today. The bank will also pay interest on deposits within 60 percent of lenders' target reserves, compared with a previous range of 37.5 percent.