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In a report, entitled Banking Reform, the committee set out its proposals for how to improve the regulation of lenders following the difficulties at Northern Rock and discussed the special resolution regime.

The regime would be triggered when a bank or financial insittution is deemed to be in financial difficulty, thus triggering a series of special powers for the authorities to intervene in the bank to avoid another situation like the run on Northern Rock.

The committee stated in order to strengthen the Bank of England's role in financial stability, the proposed Financial Stability Committee should be established in statute with a status comparable to that of the Monetary Policy Committee, with executive responsibility for the the Bank's financial stability functions.

The report also recommended the FSA be placed under a statutory duty to prepare and consult on a code of practice for heightened supervision of individual firms.

John McFall, chairman of the Treasury Committee, said: "As the regulator, the FSA should have the sole authority to place firms in the special resolution regime. However, the Bank must have the power to recommend that the FSA pull the trigger to bring an individual institution into that regime.

"The system we propose maintains a clear line of authority, while ensuring that the Bank of England has a reason to engage with individual institutions."

The report also backs an element of pre-funding of the Financial Services Compensation Scheme but recommends such a scheme should be flexible enough for contributions to be suspended at times of economic crisis.

The committee also recommend that contributions vary according to the FSA's assessment of each bank’s risk profile.