The Bank of England is to face an unprecedented challenge to its reputation after Britain's highest court gave the go-ahead for it to be sued for up to £1 billion sterling (€1.6 billion) by the liquidators of the collapsed Bank of Credit and Commerce International. The law lords ruled by a 3-2 majority yesterday that the liquidators, Deloitte & Touche, could bring a High Court case against the bank claiming serious misconduct by senior officials.

The civil trial, expected to start next year, will be the most searching and potentially expensive examination of the central bank's competence in its history. Its most senior staff, including current governor Sir Edward George, are possible witnesses in the case, which is expected to last between six months and a year.

The case is likely to be fiercely fought by the bank. A settlement is possible but unlikely.