BANK of England governor Mervyn King has promised further help to banks, on top of an extra £5bn pledged last week, to stave off any possible crisis caused by the credit crunch.

Mr King yesterday told MPs on the Treasury Select Committee that he would provide the "liquidity assistance" that the banking system needed to restore its confidence.

Senior executives from the five big banks - HSBC, Royal Bank of Scotland, Barclays, Lloyds TSB and Halifax Bank of Scotland (HBoS) - met Mr King last week.

The banks were understood to have sought guarantees that he would provide whatever finance was necessary if a UK lender suffered a cash shortage.

It was triggered by the crisis at US investment bank Bear Stearns, which got into trouble after rumours of problems at the bank caused investors to demand their money back and other banks refused to lend it money over fears it had too many bad debts.

With banks tightening their criteria for lending to each other, amid concerns that the Bear Stearns crisis was a sign of worse to come, the extra cash from the Bank of England was aimed at reassuring UK banks.

Although he pledged to help the banks, Mr King yesterday told MPs that it was "unrealistic"

to assume that markets were likely to reopen speedily and it was important that discussions also took place about longer-term solutions.

Mr King said: "I want to assure you that the Bank will provide the liquidity assistance that the system needs in order to restore confidence. Such lending can be only a temporary measure, but it can be a useful bridge to a longerterm solution."

Mr King suggested that it was the perception of what was happening in the economy that was partly to blame for the problem.

He said: "It is not that banks, at least in the UK, have made loans that are likely to result in unsustainable losses.

"The heart of the problem is not in the real economy. It is in the financial sector itself."

Because of the uncertainty over banks' financial positions the Libor rate - at which banks lend to one another - remains high and Mr King said it was a "matter of concern" that the efforts by central banks had so far failed to reduce the problem.

Mr King said it was important that the risk relating to losses on lending should remain with the banks' shareholders.

Figures last week showed that the measure of the cost of living - the Consumer Prices Index (CPI) - had reached a nine-month high of 2.5 per cent last month.

The Bank is charged with keeping CPI to two per cent and Mr King will be forced to write an open letter to Chancellor Alistair Darling if inflation creeps more than one per cent above the target.