Sir John Gieve, the Deputy Governor of the Bank of England, confirmed today that he will stand down from his role next year, stating he "would not wish to serve another five-year term at the Bank".

Sir John was responsible for maintaining the stability of financial markets.

His surprise departure emerged last night, overshadowing Chancellor Alistair Darling's first Mansion House speech, where he outlined plans to give the Bank an enhanced role in financial stability to try to prevent another banking collapse similar to Northern Rock.

Sir John, 58, who was accused of lack of vigilance in the Northern Rock affair, said today that both the Chancellor and the Bank of England Governor, Mervyn King, asked him to stay on until new legislation to deal with a failing bank is put in place in spring next year.

He said today: "Once the legislation is in place, building up the new capabilities in the Bank will require a long term commitment. It makes sense for someone else to take on this task who is prepared to commit himself to a full five-year term. I have decided therefore to step down at that point.

"The Governor and Chancellor have both asked me to continue in the job of overseeing this reform process until then."

Speculation about Sir John's future has swirled since last year, when he was savaged by the Commons Treasury Select Committee for not doing enough to prevent the crisis in Northern Rock.

Sir John said today that when he steps down next year it would bring him "to the end of a usual three-year MPC (Monetary Policy Committee) term."

However, the three-year term has no relevance to Sir John who, as Deputy Governor, serves a five-year term. His departure means that he is stepping down 2½ years early after being appointed to the role in January 2006.

Sir John said in his statement: "I would not wish to serve another 5 year term at the Bank."

Only external members of the MPC serve a three-year term such as Charles Bean was today confirmed as the replacement for Rachel Lomax, the Bank's other Deputy Governor, due to step down on July 1.

It is not clear whether Sir John was forced to resign or quit voluntarily. Mr King said today: "I am grateful to John for his hard work and loyalty. In particular since the events of last summer, John has played a major role in delivering the new framework.

"I can understand why he does not want to assume the new position, but I am very glad he is staying on to see us through until the bill is law.”

His exit comes as the Bank faces its most difficult period for a generation. The Northern Rock debacle and the Bank’s inability to tame resurgent inflation have led to increasing tensions with the Treasury.

It is unclear who will replace Sir John, but the Treasury has previously indicated that it would favour Paul Tucker, a former corporate financier and now the Bank’s executive director in charge of markets, to have the role. Mr Tucker is also on a three-year term.

Mr King recently won a battle with the Treasury to have Mr Bean, his choice, appointed as Ms Lomax’s successor.

The Treasury believed that the Bank’s management skills could become unbalanced, given Mr King’s own background as a respected academic economist, with Ms Lomax and Sir John, both former Whitehall permanent secretaries, as his deputies.

The Conservatives and senior MPs had urged Mr Darling to appoint someone with clout in the City – not Mr Bean – as the next deputy governor. Sir John’s resignation will now enable Mr Darling to do exactly that.

The shake-up at the Bank emerged as Mr Darling used his inaugural Mansion House speech last night to unveil a new financial stability committee that will oversee the Governor’s actions and hold him accountable if potential banking crises are not averted.

The committee will be staffed with members of the Bank’s own Court and eminent City figures to be handpicked by Mr Darling. “The aim is to hold Mervyn accountable for his actions,” an insider said yesterday.

Mr Darling has made clear he was disappointed by the Bank’s performance in its financial stability role last year as the credit crisis took hold and banks began clamouring for help.

To avoid a repetition of the crisis, the Chancellor said, the Government would now give the Bank “formal legal responsibility” for financial stability, alongside its monetary policy role.

The measures are part of the Treasury’s banking reform Bill, first laid out at the start of the year. Mr Darling said that he would give more details of the committee today in a letter to John McFall, chairman of the Treasury Select Committee.

The Chancellor said he would also outline new powers for the Financial Services Authority to help to prevent the failure of a bank and to address market abuse and insider trading. “We must do everything possible to prevent problems which could pose a wider threat to stability,” he said.

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