Darling acts to avoid repeat of Rock crisis

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The Independent Online

The Chancellor, Alistair Darling, will propose new powers today for the Financial Services Authority, the Bank of England and the Treasury to avoid a repeat of the Northern Rock debacle last autumn, an event that saw the first run on a bank in almost a century and a half. The Government's consultation document will ask for reponses within the next 12 weeks.

While maintaining the "tripartite" architecture established while Gordon Brown was Chancellor in 1997, the paper envisages important changes. The Chancellor's role as the ultimate authority at times of crisis will be formalised via a "Cobra"-type committee and the Bank of England will see its responsibility for financial stability "ramped up", and formalised in legislation.

But the Government will ignore recent recommendations from the Treasury Select Committee and offer the FSA a key role in distressed institutions. The Treasury wants to grant the watchdog new powers to obtain information from banks and the ability to intervene through the appointment of a "restructuring officer" to control assets and liabilities in exchange for emergency support. For those firms unable to continue, the existing, cumbersome, path of liquidation would be replaced by a "special resolution regime".

The Conservatives propose to give new pre-emptory powers to the Bank of England, and a single eight-year term for the Governor of the Bank.