Financial support to Northern Rock

The British government authorised the Bank of England to provide financial support to Northern Rock as the mortgage lender became the biggest British casualty so far of the crisis in credit markets.

Following is a statement from the Bank of England's Web site on when it will act as "lender of last resort":

"Financial crisis management is a key element of the Bank's responsibility for financial stability.

The Memorandum of Understanding (MoU) on financial stability between the Bank, FSA and HM Treasury outlined that in a financial crisis the Bank might need to undertake support operations - commonly referred to as acting as "Lender of Last Resort", said a statement from the Bank of England.

"The aim of these official financial operations would be to limit the risk of problems in or affecting particular institutions spreading to other parts of the financial system.

"The situations in which the Bank might undertake support operations are outlined in the MoU, said the statement.

It notes that a support operation `is expected to happen very rarely and would normally only be undertaken in the case of a genuine threat to the stability of the financial system to avoid a serious disturbance in the UK economy'.

"If the Bank or the FSA identified a problem where a support operation might be necessary, we would inform or consult with each other.

"The Chancellor would be given the option of refusing a support operation, given that public funds might ultimately be put at risk'" the statement concluded.