A turf war is brewing between the Bank of England and the financial regulator for the power to take control of failing banks.

Sir Callum McCarthy, chairman of the Financial Services Authority (FSA), told MPs that they risked “duplication, lack of clarity and lack of responsibility” by giving the Bank equal power to decide when a bank is in trouble.

Speaking at a Treasury Select Committee hearing yesterday, Hector Sants, the FSA chief executive, said that duplicating the regulator’s power would put Britain at risk of another Northern Rock debacle.

“If it becomes a complex, overlapping process, neither regulator will do a good job and we’ll be back here having the same discussion,” he said.

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The Treasury is consulting the sector on legislation to create a special resolution regime (SRR). Under the SRR, banks could far more quickly be put into liquidation, stripped of their assets and new executives appointed. When it outlined the regime in a January consultation paper, the Treasury said that it expected the FSA to take the decision after extensive consultation with the Bank and Treasury.

However, Mervyn King, the Governor of the Bank of England, told a Treasury Select Committee hearing last week: “Either \ ought to have the ability to determine whether or not this trigger should be pulled and the bank goes into a special resolution regime. I do not think that should be left entirely with the supervisor because . . . of the natural reluctance of a supervisor to announce publicly that the supervision regime has not been successful.”

Sir Callum fears that if the Bank also was given authority to pull the trigger, it would start to encroach on the FSA’s activities. “The difficulty of giving two sets of triggers is that, if I were working for another organisation and were responsible for pulling the trigger and having to appear before this committee to explain my actions, it would inevitably force me into quasi-monitoring of the banks,” he said.

John McFall, the chairman of the committee, said that he would write to the Chancellor to ask for the draft legislation to be put out for a second round of consultation before it was placed before Parliament.

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