Alistair Darling, the Chancellor, will reveal next week his plans to improve banking regulations that will give the Financial Services Authority more power to step in earlier to try to prevent another Northern Rock-style bank run.

Both the Chancellor and the FSA, the City watchdog, have been heavily criticised for their lack of vigilance in the Northern Rock affair, which led to the first big run on a British bank in more than a century.

Although the Northern Rock situation is far from resolved, and a buyer is yet to be found, Mr Darling plans to use next week’s Treasury Select Committee hearings to outline new measures to prevent a repeat of the debacle.

He plans to introduce new legislation that will allow the FSA to step in and seize customer deposits if it detects that a bank is getting into trouble. He is also expected to give an indication of how the tripartite authority of the Treasury, Bank of England and the FSA should better work together in times of crisis.

Mr Darling’s measures may be seen as too little too late. Moreover, it was the failure of the FSA to spot the Rock’s problems early enough that led to the near-collapse of the Newcastle-based bank, rather than a lack of powers to do anything about it.

A Treasury spokesman said: “He will make his position a bit more final then,” referring to the committee hearings next Thursday. The spokesman added that a full list of proposals would be published soon afterwards. A consultation period of roughly 12 weeks will follow and the Chancellor intends to introduce new legislation in May.

A review of the tripartite structure has long been expected, given widespread criticisms that the trio were too slow and indecisive on key areas of Northern Rock’s rescue. A new regime could give the FSA and the Bank of England a say, while ultimate decisions would rest solely with the Chancellor.

The Treasury spokesman said that the changes would not amount to a radical reform but rather a “tweaking around the edges” of existing tripartite arrangement. He said: “It’s a strengthening of the current arrangements.”

The British Bankers’ Association welcomed earlier intervention by the FSA and a clarification of who does what at the tripartite. The BBA said: “Changes are needed, but have to be properly thought through . . . not a knee-jerk reaction.”

Simon Hills, BBA executive director of prudential capital and risk, said that the Rock’s problems had demonstrated clear weaknesses in the tripartite structure.

Northern Rock is thought to have borrowed just over £26 billion from the Bank of England, including about £500 million in the past week, data from the bank’s weekly balance sheet shows. Suitors, including Sir Richard Branson’s Virgin Group, are circling around the stricken bank, but so far none has been able to secure the necessary funding to launch a full-blown bid and repay the central bank.

A spokesman for the FSA declined to comment on the forthcoming changes. He said that the FSA, in conjunction with the Bank of England and the Treasury, had published a discussion paper on ways to improve the tripartite’s handling of banks in distress. A consultation period ended in early December and the FSA is due to update the public on the conclusions soon.

FSA’s new powers

—Step in if certain actions, such as a request by a troubled bank to the Bank of England for emergency loans, are triggered
—Seize and protect cash deposits and repay them to customers or parcel them off to another bank, or back to the original bank if it has since been rescued
—Gain access to information it needs to assess a troubled bank’s liquidity position

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