|PIC1|The government will give its financial watchdog greater powers to step in early and take control of bank deposits when lenders run into trouble, Chancellor Alistair Darling said.

The near collapse last year of Northern Rock, the country's fifth-biggest mortgage lender, has triggered calls for changes to the way Britain oversees its banking industry.

"I want to make sure our own legislation is up to the mark in dealing with problems when they arise in future," Darling said in an interview published in Friday's Financial Times.

In comments laying out widely expected changes to the current system, Darling said there were no plans to create a new, U.S.-style body which would take control of troubled banks, but indicated that power would be in the hands of the Financial Services Authority, already responsible for the sector.

"When certain trigger points are reached or you have offered lender of last resort facilities you could say that as a condition of that it may be necessary to reorganise or take a particular course of action," Darling was quoted as saying.

"What I want to do is make sure that, were this to ever happen in the future ... gaps in the law are addressed so that we can take appropriate action and do it in a way that will maintain the stability of the financial system."

Under Britain's "tripartite" system, the Treasury, Bank of England and the FSA share responsibility for financial regulation and came under fire for their handling of funding problems at Northern Rock, which triggered the first bank run in more than a century.

Darling said he had no plans to "do anything that impairs or affects the Bank of England's duties with regard to monetary policy".

Plans sketched out on Friday appeared to hand more powers to the FSA despite criticism it failed to spot warning signs at Northern Rock.

Darling said primary legislation to be introduced in May after three months of consultation would include giving the FSA greater powers to monitor banks' liquidity, as well as their capital requirements. The FSA is already looking at changes to its current liquidity regime and has told banks it is likely to require more information.

The British Bankers' Association welcomed Darling's comments, adding it supported a tripartite system of regulation "with the FSA in the lead".

"Changes are needed but have to be properly thought through on the basis of proper widespread consultation and not a knee-jerk reaction," BBA Chief Executive Angela Knight said.

The FSA declined to comment on Friday.

Finance minister Darling will also look into current insolvency laws, under which banks are treated no differently from other companies, which made a covert rescue of Northern Rock impossible.

He will also take steps to improve protection of depositors' cash "to make sure there is no doubt about how much money is guaranteed and also to make sure people can get out their money fairly quickly," Darling was quoted as saying.

Under a scheme boosted after the Northern Rock crisis, the Treasury guarantees 35,000 pounds of deposits.