The Financial Services Authority does not deserve new powers to intervene in failing banks after its dismal performance in failing to spot the flaws in Northern Rock's business model, a parliamentary inquiry into the affair will conclude tomorrow.

A long-awaited Treasury select committee report into the run on the bank is also expected to criticise the Bank of England's role, including its decision not to inject liquidity into the banking system last summer when the credit crunch started to bite.

Alistair Darling, chancellor, takes flak in the report, but it is understood that the Labourdominated committee is less critical of his role in the crisis.

The MPs' report, which follows several months of inquiries, is the most comprehensive assessment yet of the lessons to be learnt from the near-collapse of Northern Rock last September.

It will call for largescale reforms to the way the tripartite regulatory system - the Treasury, the FSA and the Bank of England - operates, and argue that complacency, lack of communication and clumsy decision-making between the three bodies made a bad situation worse.

Aside from the Northern Rock board - which is pilloried by MPs for triggering the crisis through its flawed business model - the biggest criticisms are saved for the FSA, according to people who have seen the final text.

It will call into question the plan by Mr Darling to give the watchdog new powers to seize and protect depositors' cash when a bank gets into serious difficulty, and then to oversee its recovery. The MPs' preference is for the Bank of England - which is closer to the markets - to have a greater role in ensuring financial stability.

The FSA is accused of failing to spot the flaw in Northern Rock's funding plans or to encourage it to diversify its sources of funding.

Vincent Cable, Liberal Democrat Treasury spokesman, said: "The FSA has failed in every test since it was set up."

Conservatives argue that the Bank of England is better placed to oversee plans for a US-style insolvency regime for banks.

The chancellor will next week launch a three-month consultation on new banking legislation, including the creation of an insolvency regime, under which depositors' savings would immediately be secured when a bank got into serious difficulty.


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