LONDON (Reuters (LSE: TRIL.L - news) ) - Bank of England Deputy Governor John Gieve announced on Wednesday he is to quit prematurely, just as the government unveils the biggest shake-up of the central bank's financial stability remit in more than a decade.

Gieve, who has specific responsibility for keeping the financial system on an even keel, has come under harsh criticism for his part in the authorities' handling of the credit crunch and the collapse of mortgage lender Northern Rock (LSE: GB0001452795.L - news) .

"Sir John Gieve has decided he will leave the Bank next year, once changes to the Bank's responsibilities have been made," the BoE said in a statement.

"Sir John believes the Bank's new responsibilities should be led by a new deputy governor who will serve a full term."

The shock resignation, to take effect in spring 2009, is likely to be regarded as a reaction to changes in how the government wants the central bank to be responsible for, and manage, financial stability.

It may also cause embarrassment for BoE Governor Mervyn King as it follows hot on the heels of a decision by his other deputy, Rachel Lomax, to not pursue a second term.

It is unlikely, however, that Gieve's departure -- two years before it was due -- will prompt too many tears elsewhere.

"It's not surprising that he is stepping down because of the deep problems of the last year," the chairman of parliament's powerful Treasury Select Committee, John McFall, told Reuters.

"It is important that a fresh start is made and financial stability becomes the watchword."

BAD TIMING

Gieve's announcement could not have come at worse time for finance minister Alistair Darling, delivering his first speech to a prestigious annual gathering of City of London (LSE: CIN.L - news) bankers -- a speech that outlined sweeping changes to how the BoE will deal with stability.

Both King and Gieve were at the event.

While the governor -- not immune himself to criticism at the height of the credit crunch -- welcomed the changes in a speech of his own, they would likely have made uncomfortable listening for Gieve, who steps down before his mandate expires in 2011.

They envisage a very different role for the deputy governor, with the creation of a Financial Stability Committee chaired by King and accountable to the Treasury Committee.

That panel will consist of outside experts as well as insiders and guide the central bank's management of the financial system.

The BoE is now faced with the task of replacing both deputy governors in the space of a year. BoE Chief Economist Charles Bean is expected to be named as Lomax's replacement on Thursday.

Policymaker Paul Tucker, who has a remit for markets, may be considered the frontrunner to take Gieve's position.

(Writing by Matt Falloon)