The banking industry added to the pressure on the Chancellor in the lead-up to the Budget by telling him not to rush new legislation in the wake of the Northern Rock crisis.

In a consultation response, the British Bankers’ Association (BBA) said that the Treasury risked undermining creditors’ rights if it pushed through a “special resolution regime” for when a bank was at risk of collapsing. The Treasury suggested the changes in January after examining the fallout from Northern Rock and said that they would add stability to the financial system.

Angela Knight, chief executive of the BBA, said the proposals, which would push depositors to the front of the queue when a bank was wound up, could deter people from investing in or lending money to banks. Rather than introducing new rules, the Treasury should examine why the tripartite – the Treasury, Bank of England and Financial Services Authority – did not use all the measures already available to it during the Rock crisis.

Ms Knight said: “We find it difficult to accept that there needs to be widespread changes when the regulators did not use all of the tools at their disposal . . . The concentration should be on prevention and clarification of responsibilities, not on fundamental changes to the insolvency regime.”

She said that the industry accepted the need for changes to the scheme for compensating people who lost money when a bank collapsed, but said the proposal that banks must contribute up front to a pot of compensation cash was expensive and unnecessary.

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