LONDON (Bloomberg) - Bank of England Governor Mervyn King won new authority to manage crises and promotions for two of his proteges in the biggest shake-up of Britain's financial policy making in a decade.

Mr. King named Spencer Dale, a career central banker, to become chief economist. Charles Bean, currently filling the position, takes over as deputy governor in charge of monetary policy when Rachel Lomax retires at the end of this month, the Treasury said in a statement in London yesterday.

The appointments brush aside suggestions from lawmakers that the government should name people with experience in the finance industry to oversee policy at the central bank.

Mr. King, attempting to manage Britain's worst bout of inflation in at least 11 years, fought to improve the career path of officials at the bank.

"The promotions significantly strengthen Mervyn's grip on the committee and the Bank of England itself," said Danny Gabay, an economist at Fathom Financial Consulting in London who formerly worked with Mr. Dale at the central bank.

"It will likely strengthen the Monetary Policy Committee's resolve to keep their eye firmly focused on inflation and inflation expectations."

Chancellor of the Exchequer Alistair Darling said the Treasury will hand the bank an explicit mandate overseeing financial stability and create a panel to regularly discuss threats to the banking system.

The measures, which require legislation, will be the biggest changes since the Treasury handed the bank authority to set interest rates in 1997.

Yesterday's changes are the result of a compromise between the Treasury and the central bank. Mr. King had his way in getting bank insiders promoted.

He ceded powers on financial stability to the panel of outside experts that will have the authority to second guess him about the threats to the banking system.

"It's a bit of a fudge," said Michael Fallon, a Conservative lawmaker on the Treasury Committee overseeing economic policy.

"It's going in the right direction."

Together, the changes are meant to prevent another episode like the run on Northern Rock plc. deposits last year. The popularity of Gordon Brown's Labour Party dropped to the lowest since World War II after depositors at the mortgage lender lined up to withdraw savings, raising questions about the government's economic competence.

Opposition lawmakers brushed aside the plan, saying Mr. Darling already had suggested some of the changes. Conservatives said it will do nothing to help the economy.

Liberal Democrats called it "tinkering" that won't head off the next crisis.

"The chancellor is trying to talk a good game, but it is still less than clear what meaningful powers he is actually going to give the Bank of England," said Vince Cable, a Liberal Democrat lawmaker who speaks on finance.

"The turbulence in the financial sector needs strong leadership, yet all we have seen from the chancellor is more mealy-mouthed prevarication."

John Gieve, the deputy governor in charge of stability at the bank, will leave half way through his five-year term next year when the new system is in place. Lawmakers on the Treasury Committee singled him out for failing to raise the alarm before Northern Rock's credit lines dried up.

Under the new system, the Financial Services Authority will be given the power to intervene to help a troubled financial institution.

If a bank's troubles persist and the FSA is forced to appoint a new management, control over the lender would go to the central bank.

"The challenge for us is to ensure that the authorities can act quickly and decisively where necessary to support financial institutions," Mr. Darling said in a speech in London on Wednesday night.

"These measures represent a major reform equipping us to deal with the challenges we face."

The Bank of England also gets new authority to provide liquidity to financial markets as well as formal power to oversee the system managing payments between banks and with credit cards.

The chancellor plans to give specific guidance to the bank each year in open letters between the government and the bank, the Treasury said in a letter to lawmakers.

A new stability committee will be given qualitative objectives to meet instead of a numeric target like the Monetary Policy Committee has, which is to keep inflation to two percent a year.

"We now have the chance to put in place a set of reforms that provide a coherent framework for banking regulation," Mr. King said last night in a speech after Mr. Darling spoke. "It is an opportunity we must not throw away."

The stability committee's remit will be set by the Bank of England's Court of Directors in regular letters.

The panel will be accountable to the Court and to Parliament through the Treasury Committee, a panel made up of lawmakers from each of the three main political parties.

Mr. Darling also moved to blunt criticism from lawmakers about the Treasury's secrecy in the way it names people to serve at the Bank of England, pledging to advertise future vacancies for the posts of governor, deputy governor and external members on the Monetary Policy Committee.

The Treasury also said it will limit to two the number of three-year terms that MPC members from outside the bank can serve.

That may affect Kate Barker, who is now in her third term on the policy panel.