The most senior member of the Court of the Bank of England admitted yesterday that there were “inconsistencies” with the appointment of Mervyn King as chairman of its new Financial Stability Committee and hinted that the decision could be overturned in the autumn.

The Chancellor announced the creation of the Financial Stability Committee last month and said that Mr King, the Bank’s Governor, would be accountable to it for his new statutory role as regulator of financial markets.

However, there was an outcry from MPs when it emerged later that Mr King would also be chairman of the committee and that its other non-executive members would be drawn from the Bank’s court.

This meant that there would be no external oversight of Mr King’s role, as Alistair Darling had indicated previously.

The result was seen as a huge victory for Mr King, who also won a battle to appoint Charlie Bean as the Bank’s next deputy governor of monetary policy.

Michael Fallon, the leading Conservative MP on the Commons Treasury Select Committee, questioned Sir John Parker, chairman of the non- executive directors of the Court of the Bank of England. “How is it possible for Mr King . . . to be accountable for his actions on financial stability to a committee that he himself is the chairman of?” he asked. “You will agree with me that this is a problem.”

Sir John, who was giving evidence to the committee as part of its investigation into new banking reform legislation, attempted to skirt the issue by saying that Mr King was accountable to the Court, not the Financial Stability Committee.

Later, when pushed by Mr Fallon on Mr King’s role, he conceded: “It would appear that there’s an inconsistency that we should iron out.”

Sir John added: “We recognise that there’s a lot of work to be done this autumn on that particular building brick . . . about the role of the committee . . . how it’s manned . . . its terms of reference, its authority.”

Mr Fallon said that the arrangement was quite clearly “a muddle”. Sir John replied: “I’ll leave it as an inconsistency”.

John McFall, the Labour MP who is the chairman of the Treasury Select Committee, said that despite the court’s existing powers over financial stability, “we still ended up in an unholy mess” over the collapse of the Tyneside-based Northern Rock. He was concerned that the Court was nothing more than a “talking shop”.

Times Recommends

• Minister in talks with Saudis to protect creditors
• Premier Inn hits back in £29-a-room row
• Bankers hit back at 'populist' bonus supertax