Bank Left Reeling as Deputy Quits; Inflation Warning: Bank of England Governor Mervyn King Delivers His Stark Message to the City at Mansion House, Watched by Chancellor Alistair Darling. Below: Deputy Governor Sir John Gieve Who Resigned Last Night

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Byline: HUGO DUNCAN

THE Bank of England was today in turmoil after the resignation of SirJohn Gieve, the deputy accused of neglecting his duties during the collapse ofNorthern Rock.

Sir John quit last night in a move that stunned the City and Westminster andleft the Bank facing its biggest internal crisis since it was givenindependence in 1997.

As deputy governor, the 58-year-old was responsible for maintaining thestability of financial markets.

His departure from Threadneedle Street, officially scheduled for spring nextyear, makes him the highest profile casualty of the Northern Rock collapse andcredit crunch so far.

The Newcastle-based mortgage lender ran out of money last autumn and was bailedout by the Bank before being taken over by the Government with [pounds sterling]100 billion oftaxpayers' money.

Sir John came under fire after it emerged he had been on holiday for two weeksin mid-August when the Bank was told of the problems at Northern

Rock. He said last night: "In recent months I have been leading work in theBank on a new and better framework for financial stability. I fully support thenew proposals and, in particular, the enhanced role for the Bank of England.

"Once legislation is in place, building up the new capabilities in the Bankwill require a long-term commitment.

It makes sense for someone else to take on this task who is prepared to commithimself to a full five-year term. I would not wish to serve another five-yearterm at the Bank." John McFall, the chairman of the Treasury select committee,told Sir

John last September: "Frankly, I do not think you are doing your job. …