Bank left reeling as deputy quits

The Bank of England was today in turmoil after the resignation of Sir John Gieve, the deputy accused of neglecting his duties during the collapse of Northern Rock.

Sir John quit last night in a move that stunned the City and Westminster and left the Bank facing its biggest internal crisis since it was given independence in 1997.

As deputy governor, the 58-year-old was responsible for maintaining the stability of financial markets.

His departure from Threadneedle Street, officially scheduled for spring next year, makes him the highest profile casualty of the Northern Rock collapse and credit crunch so far.

The Newcastle-based mortgage lender ran out of money last autumn and was bailed out by the Bank before being taken over by the Government with £100 billion of taxpayers' money.

Sir John came under fire after it emerged he had been on holiday for two weeks in mid-August when the Bank was told of the problems at Northern Rock. He said last night: "In recent months I have been leading work in the Bank on a new and better framework for financial stability. I fully support the new proposals and, in particular, the enhanced role for the Bank of England.

"Once 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 would not wish to serve another five-year term at the Bank."

John McFall, the chairman of the Treasury select committee, told Sir John last September: "Frankly, I do not think you are doing your job."

He said: "How did you get a situation where the effort put in to rescue Northern Rock is the equivalent of screaming 'fire' in a darkened cinema? Were you having a sleep in the back of the shop while a mugging was taking place?"

After Sir John protested his innocence, Mr McFall went on: "It's absurd that you should come here and say you didn't know anything about it - you are the guy in charge of financial stability."

Until then Sir John, a member of the Savile Row tailoring family behind Gieves & Hawkes, had been seen as a possible-successor to the Bank's Governor Mervyn King but his star quickly faded. He handed his notice in as the Chancellor Alistair Darling addressed City bankers at Mansion House last night.

Mr McFall said today: "This is unexpected in the light of the turbulence in the money markets and the importance the Governor has attached to financial stability.

"It is the signal for a new start and I hope and expect that it indicates financial stability is the number one priority."

Charterhouse and Oxford-educated Sir John, a career civil servant and former Treasury mandarin of 20 years, joined the Bank after leaving the Home Office. He was permanent secretary at the Home Office between 2001 and 2005, including when David Blunkett was Home Secretary, and is reputed to "know where the bodies are buried".

During the Blunkett affair, he was unable to recall how a visa for the minister's nanny was fast-tracked and failed to declare that his wife's firm of solicitors was acting for Mr Blunkett. He also came under heavy fire after 1,000 prisoners were not considered for deportation after serving jail terms.