LONDON, Nov 3 (Reuters) - Below are highlights of parliamentary testimony by Bank of England Governor Mervyn King, British finance minister Alistair Darling and Financial Services Authority Chairman Adair Turner on Monday.
* BANK OF ENGLAND GOVERNOR MERVYN KING

"That does not mean to say it (the UK government) won't get money down the road which will more than justify the initial sums put up."

"As for the future the banks will need to regenerate new sources of funding. The level of savings will be there. Indeed one would expect that in the next year or two, the domestic economy will be saving more as a fraction of GDP than it has in recent years. So I've no doubt that the savings pool is there."

"HBOS was suffering from a very rapidly falling share price and clearly a loss of confidence that was undermining its ability to operate as an independent entity. The only alternative to a merger would have been a full-scale nationalisation."
"Our advice was that in the interests of UK financial stability, a merger was the desirable outcome."

* UK FINANCE MINISTER ALISTAIR DARLING

"It is up to the shareholders in Lloyds and in HBOS as to whether or not they want to vote for this merger. If they don't do so then we will have to proceed on the basis that we've got Lloyds TSB on the one hand and HBOS on the other. Both will have to go back to the FSA and we'll have to recalculate the capital requirements and proceed accordingly."
"The idea that HBOS was a perfectly happy, functioning bank and there was nothing wrong with it, and then along came Lloyds TSB and put in a bid for it, that isn't quite right -- look at what the OFT report says."
"When we looked at this, the Bank of England, the FSA and ourselves, it was our view that the financial stability argument was still a strong one. Now at the end of the day, it's up to the shareholders. And indeed it is open to anybody else to come along and put in a bid for HBOS. The only thing I'd have to say to you is that so far no other bid has been put in place."
"And the problem we had was, if we had not intervened, if we had not allowed the Lloyds bid to have gone forward then HBOS would have been in an extraordinarily difficult situation."

"I am about to write you Mr McFall in your capacity as chairman of this committee setting out the details of the holding company that the government is setting up today to manage the shareholdings in RBS, HBOS and Lloyds TSB -- and probably also Northern Rock and Bradford & Bingley, or that part which the government still maintains."
"And that letter will set out the objectives of this company which are to ensure ... that these companies are managed in a commercial way and at arms length from the government."

"Although the wider body of banks, those who raise their money on the markets, are not subject to the detailed agreements which I was referring to, we do want to ensure that we encourage them to do as much lending to small businesses as possible and of course to lend into the mortgage market."
"Lord Mandelson, secretary of state for business and enterprise, and I met the banks last week and we agreed that we would need to meet on a regular basis to make sure that we did everything possible to make sure that funding is being made available."

"In relation to Lloyds TSB, on the assumption that they take up the (preference) shares ... they will be affected by the same restrictions as HBOS and RBS."
"So anyone who uses the bank reconstruction fund is treated the same way."
"We don't expect many bonuses at all to be paid in the banking system next year."

"In relation to what has been happening in the banking system overall, I think there are several levels of responsibility. Yes, in our national regulators. Undoubtedly we needed to toughen up what was happening internationally ... There's another area which we overlook at our peril and that is the responsibility of boards of banks who are supposed to be the first line of defence in relation to their own institution."
"Yes, we've got to look at what governments are responsible for. But we've also got to ask ourselves: 'How do we ensure that in future banks actually know what they are doing?'"
"The difficulty we've had over the last few years is that a situation was allowed to build up where money flooded into the system, interest rates were low, people were looking for better returns and alighted on the securitised market. And of course when that went wrong, when people started to default in America in 2007, the consequences for the rest of the world were catastrophic in terms of the health of the banking system."
"So of course there are lessons to be learned on our part. There are lessons to be learned in every single country in the world but crucially it's important that we make sure that we have a far better surveillance, far better monitoring of problems that are building up."

* FINANCIAL SERVICES AUTHORITY CHAIRMAN ADAIR TURNER

"At the level of the whole world there was a failure to see enormous risks developing in our financial system."
"The world for many years was on a boom of credit extension that turned out to be unsustainable."
Keywords: BRITAIN DARLING/

(UK Economics Desk; Tel. +44 207 542 2774)

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