Bank Governor Promises Loan Backing

Mervyn King told a parliamentary committee that it was important to discuss longer-term solutions with Britain's major banks.

"I want to assure you that the bank will provide the liquidity assistance that the system needs in order to restore confidence," King told the Treasury Select Committee.

"Such lending can be only a temporary measure but it can be a useful bridge to a longer-term solution."

King also told the committee that he expected inflation to rise near 3 percent in coming months before falling back near the official 2 percent target later this year.

King said he could not predict the outcome of discussions with the banks, but he said it was important that the risks of lending should remain on the institutions and their shareholders, and that taxpayers should not be insuring new issues.

"The banks neither need nor want the taxpayer to insure them against these losses," King said.

"One of the lessons of this financial crisis is that providers of mortgage finance had underestimated the risks, and hence the true cost, of the securitization process," he added.

The bank has pumped an extra 10 billion pounds ($20 billion; 12.8 billion euros) into financial institutions to ease the credit crush, and King said that support will continue.

Britain's key inflation rate jumped to 2.5 percent in the 12 months through February from 2.2 percent in January, in part because of a change of method in calculating the rate. The government's target is to hold consumer price inflation to 2 percent or less.