In an effort to ensure there is no repeat of the Northern Rock fiasco, the Bank of England will have to draft in a panel of eminent City figures to ensure it is more alert to looming financial trouble, revealed chancellor Alistair Darling on yesterday.

Mt Darling has instructed City insiders to sit on the shoulder of the Bank’s governor Mervyn King, as part of an overhaul designed to put financial stability “right at the front” of its operations.

It is expected that, while Mr King may not welcome such oversight, there were signs that it could be a quid pro quo for him winning a related tussle with the treasury over the choice of a new deputy governor for monetary policy to replace Rachel Lomax.

Mr King has argued strongly that she should be replaced by Charles Bean, the Banks chief economist, on the grounds he needs a deputy with a strong monetary policy background to lead the fight against inflation. Mindful of the Banks weakness on financial stability issues, some Treasury officials have been promoting the claim of Paul Tucker, the head of markets.

Although Mr Darling has made it a priority to boost the Banks financial stability expertise, Treasury officials said the now expect the chancellor to back Mr Bean for the job. For this to be acceptable, the chancellor will demand that the bank accepts more external advice on city issues and formal oversight of its decisions on financial stability.

This reflects a considerable departure from the Treasury’s initially limited plans for reform of the Banks role in financial stability, set out in January.

Mr Darling told the Commons on Thursday “we should learn from the example of the monetary policy committee”, where outside experts were drawn in to help in making interest rate decisions.

He said there should be “a similar approach in relation to financial stability so that we can bring in outside expertise to advise the governor and of course the appropriate deputy governor”.

This reflects the Treasury view that the Bank is underpowered in the financial stability area; however Mr Darling’s team denies this because, after Gordon Browns shake up in 1997, much of the expertise in that area was transferred to the FSA.

The full details of the new system have not yet been finalised, though Treasury and Bank officials said the new financial stability advisers would not acquire the decision-making powers of the MPC.

“It would not be a hard operational role, it might involve scrutinising decisions but potentially it’s more than that,” said one Darling ally.

At this point it is unclear how the Treasury intend to find panel members who were both credible yet had no conflicts of interest.

Mr Darling’s aides say giving the Banks enhanced City expertise would not mean he is ditching his plan to give the FSA controversial new powers to intervene in failing banks, which is the centrepiece of new banking legislation.

The bank is concerned however, that it will have responsibility to foster financial stability but few powers. Mr King has proposed having the power to intervene progressively in the supervision of banks as their financial positions weaken.