What a morning for Mervyn King to appear before the influential Commons Treasury Select Committee.

Only a couple of hours before he arrived for a session that was always going to be dominated by the future of Northern Rock, the Treasury stepped in again massively to increase the financial guarantees it is providing for the stricken bank.

On top of the £26 billion of loans made to the bank, Alistair Darling is now telling institutions which have already made loans to it that they will not suffer if they leave their cash where it is.

The potential liability for the taxpayer could run into tens of billions. But it has been done to help the chance of a sale of the bank to the private sector. If that fails, the Government will have to think seriously about nationalisation. The newspapers have also been full of suggestions that Mr King privately criticised the Treasury at a lunch that he is understood to have had with the columnist Irwin Stelzer.

And add to that the feeling that such an indiscretion will not have helped his chances of being reappointed for a second term ... yes, Mr King was truly in the hot seat.

The Times has revealed that Mr King does indeed want to stay in his job next summer. There was a suspicion around that he may have walked away because of his uneasy relations with Whitehall. But his friends have disclosed that he believes if he does not do the second term it will be blot on the Bank's record and suggest it has been at fault.

The committee was never going to find the answer to the question of Mr King's future. That lies in the hands of Gordon Brown and Mr Darling. The Government was undoubtedly frustrated with Mr King when the Northern Rock crisis broke. “Mervyn has been very difficult,” a senior source said at the time. But Mr Brown and Mr Darling know that to move him out might imperil the very stability that is the centrepiece of their economic policy.

Mr King went some way to easing tensions by denying that he had criticised the Treasury for its handling of the Northern Rock crisis. Mr King told MPs he had not said that the department was “unable to focus because morale throughout the Government is so low”, a remark attributed to a Bank official in The Sunday Times.

Mr King said that he had met Mr Stelzer but insisted the comments were not his. “None of the comments in the article I recognise and they're certainly not my views,” he said. “I don't believe that anyone in the Bank would make comments like that.”

That may be seen by ministers as an attempt by Mr King to get out from under, but they will welcome it nonetheless.

Mr Brown and Mr Darling will have to decide about Mr King in the next few weeks. His fate may well be determined by the success or otherwise of the attempt to give Northern Rock a viable future.

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