THE former Governor of the Bank of England has revealed he was blocked from mounting a secret rescue of Northern Rock to prevent its collapse, which triggered the worldwide financial crisis.

On the 10th anniversary of the failure of the Newcastle-based bank, Mervyn King said a rescue plan was discussed to make a secret loan to save Northern Rock without informing the stock market.

But the proposed deal did not go-ahead after advice from lawyers and financial regulators was that such a deal would breach European Union directives.

When news of the over-stretched bank’s financial troubles broke, queues formed outside branches of the Northern Rock as customers withdrew their savings at an estimated rate of around £1 billion a day.

In a special edition of the BBC North East and Cumbria programme Inside Out to be broadcast tomorrow, a former senior figure in the stricken bank claimed that a secret loan would have saved the bank in the early days of the crisis.

The anonymous insider said: “Lending without letting the markets know would have got us through but we were told it was illegal.

“Yet this was made available to other banks a few months later to the tune of more than £61bn.”

Mr King confirmed that such a rescue was considered, but said it was Northern Rock and the Financial Services Authority who wanted to make the loan public.

He said: “Northern Rock itself and the FSA all felt it would be a good idea to reveal it.

“My advice was very clear – that we should not reveal publicly the fact that we were going to lend to Northern Rock.

“But the advice of the lawyers and the FSA was that this could not be done: it was against a European directive.

“Actually, none of my colleagues in Europe believed that for a minute.”

The authorities also denied claims that the Bank of England had blocked a proposed takeover of Northern Rock by Lloyds which would have staved off the crisis.

The Northern Rock source told Inside Out: “Lloyds were keen but they wanted a Bank of England guarantee for the money. The Bank of England refused.”

But Mr King denied there was ever a serious offer to save the bank. He said: “Lloyds never came to me and said would you lend to enable us to buy Northern Rock.

“And I think they did it because they knew it was pretty silly for them to ask for money which was a special subsidy to them.”

Alistair Darling, the then Chancellor of the Exchequer and Mervyn King, added: “I’d have welcomed any approach that was going to work.

“The problem was Lloyds showed an interest for a couple of days but never made an offer or anything.”

Eventually, Northern Rock was nationalised, leaving around 150,000 shareholders with nothing.

The Northern Rock Small Shareholders’ Association is continuing to fight for compensation for members and says it is currently preparing a submission calling for a review of the handling of their case, claiming the Treasury has subsequently made a £9bn profit from the bank.

Mr King also revealed that he wanted to set in place a plan to reimburse shareholders if the bank ever returned to profit.

He said: “My plan was that the Government would intervene and acquire the shares legally by saying to the shareholders: ‘Although we’re taking the shares from you, we will ensure that you do have the claim on the residual value’.

“I think that would have been a fair deal. Now the lawyers in the Treasury said that wasn’t feasible.”

• Inside Out will be shown in the North East and Cumbria at 7.30pm tonight on BBC One and will be available on BBC iPlayer for 30 days