Alistair Darling, the Chancellor, unveiled banking reforms today that are designed to stop a repetition of last year's Northern Rock crisis. They include allowing the rescue of a financial institution to be kept secret until it is complete.

The document also proposes that the Government should be granted powers "to take temporary ownership of all or part of a bank as a last resort".

Mervyn King, the Governor of the Bank of England, said that it was the absence of this power which meant that Northern Rock could not be rescued, despite the interest from Lloyds TSB, over a crucial weekend last September.

The new powers would allow a "period of non-disclosure" so there is no "immediate adverse impact on consumer confidence" if the UK ran into another Northern Rock-style banking crisis in the future.

Immediately after the emergence of Northern Rock's problems last September, Mr King, who was given a second five-year term in office today, told the cross-party Treasury Select Committee that laws requiring public disclosure had hampered the rescue of the Newcastle-based lender, prohibiting a quick sale to a third party that would have stopped widespread panic.

Under the new proposals, depositors in a collapsed bank or building society would be paid out within a week of its closing, rather than having to wait months or years for compensation.

After changes to the deposit protection scheme in October, investors are now guaranteed 100 per cent compensation for their savings up to a total of £35,000.

Previously, they were granted 100 per cent protection for £2,000 and 90 per cent protection for the next £33,000.

As an early warning system, banks will be required at short notice to give the authorities details of their liquidity to reduce the likelihood that they will get into trouble.

At present the focus is on a bank's capital assets.

Banking regulation in the UK is overseen by the Treasury, the Bank of England and the Financial Services Authority (FSA).

But today the Treasury proposed implementing a version of the “Cobra” system for dealing with terrorist attacks and civil emergencies, which would give the Chancellor the final say on which remedies should be used to rescue a bank.

Under the “Cobra” system the various authorities give their advice but the final power rests with the Prime Minister or the Home Secretary.

The document proposes that the Government be granted powers "to take temporary ownership of all or part of a bank as a last resort".

The reforms also include allowing the Treasury "powers to allow the Authorities to direct and accelerate transfers of banking business to a third party" and "powers to allow the Authorities to take control of all or part of a bank (or of its assets and liabilities) through a ‘bridge bank’ ".

The Treasury is fighting to sell Northern Rock to a private bidder, with Virgin Money and a consortium headed by Olivant, led by Luqman Arnold, the former Abbey chief executive, leading the race to rescue the troubled mortgage lender.

However, the Government has drawn criticism for refusing to rule out a temporary nationalisation of Northern Rock while the sale goes ahead.

Northern Rock owes the taxpayer £50 billion, half of which is made up of emergency funding provided by the Bank of England, with the remainder consisting of Government guarantees to the lender's deposits.

The consultation period on Mr Darling's proposals is open until April 23 before legislation is introduced to Parliament in the summer.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive