It is starting to appear that the liquidity failure at Northern Rock, which has caused a bank run in England despite intervention by the central bank, was caused by... the central bank:
Lloyds TSB was asked by Northern Rock to mount an eleventh-hour rescue takeover of the troubled Newcastle-based mortgage lender. The two banks held detailed talks, but the Lloyds deal was ultimately blocked by the Bank of England and the Financial Services Authority.[Emphasis mine.] If this is true, then the Bank of England actively sowed the whirlwind which it is now reaping. With the benefit of even one trading day's hindsight, their rationale seems utterly risible.
There were concerns among Bank officials that a takeover would cause greater consternation in financial markets. Once the decision to stop the rescue was made, Northern Rock had no choice but to ask the Bank for an injection of funds.