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The government and the Bank of England clashed over the potential effectiveness of the special resolution regime in parliament this week.

Mervyn King, governor of the Bank, told MPs at a Treasury select committee meeting on Tuesday, the best they could hope for from the new measures would be to handle future Northern Rock-like crises more cheaply.

But Kitty Ussher MP, economic secretary to the Treasury, branded this school of thought as “defeatist” and insisted the plans were designed to prevent future problems.

Mr King claimed there were a number of ways of reducing the likelihood of another Northern Rock and called on banks to “set aside capital when times are good, for when they are bad” as well as to look at their remuneration structures.

But he said: “In the end, if someone is offered an incentive to gamble their whole savings for a return that sounds too good to be true and it is too good to be true and they are greedy, then there is nothing you can do about it. Our role is to reduce the costs when these crises do occur.”

Ms Ussher disagreed, telling the committee: “Everything we are trying to do is to avoid any crisis of confidence in the banking system.”

Mr King also criticised the government for placing the decision to implement the special regime with the FSA, rather than his organisation.

He said: “I would have preferred a system where either the Bank or the FSA can pull the trigger. We made our view clear but we lost the argument.”

Ms Ussher claimed it was “entirely right” the FSA had the power, while the BoE could recommend institutions for the measures and the Treasury final say over what public money was spent in the process, adding: “The primary responsibility as the regulator remains with the FSA.”