The Conservative Party has vowed to abolish the financial regulator and hand over its powers to the Bank of England, should it be voted to power at next year's general election.
Shadow chancellor, George Osborne, said the central bank should be charged with the "responsibility for maintaining financial stability" in place of the current regulator, the Financial Services Authority (FSA).
Speaking at a press conference on Monday (21 July), Osborne also blamed the financial crisis of the past two years on the fact that separation between central banking and financial regulation.
"It would crucially bring together the operations of monetary policy with the regulation of the banking system," he added.
The Conservative Party, which is expected to win the coming election, is also proposing to set up a new financial policy committee charged with supervising financial institutions and the power to rein in bank lending.
Meanwhile, the FSA would become a consumer protection agency.
The Labour government set up the current tripartite system in 1997, but it has come in for heavy criticism for its failure to spot the signs of the credit crisis until too late.
Speaking alongside Osborne, Conservative leader David Cameron dismissed the current framework as "a system in which no-one was looking at the big picture, no-one had responsibility and authority to act and no-one was effectively in charge".
In his own reforms, chancellor Alistair Darling put forward plans to create a new council, which puts the FSA, Bank of England and Treasury in closer contact to oversee financial stability.
Meanwhile, the Liberal Democrat shadow chancellor Vince Cable said he would keep the FSA as a unitary regulator, and establish one financial stability committee, led and chaired by the governor of the Bank of England and including representation from the FSA.
Pay and bonuses
The regulation of City pay structures, risk-taking and the size of financial institutions also featured strongly in the Conservatives' 52-page plan for the reform of the banking sector.
The Party wants to see higher salaries for City regulators with City firms seconding staff to the Bank of England, so it can benefit from hands-on experience.
Cable, meanwhile, echoed proposals from the Walker Review, calling for highly paid bankers to publish details of their remuneration and confirm they are resident and domiciled in the UK.
"Transparency is a minimum requirement. We have argued for highly paid staff, not just directors, in regulated institutions with a compensation package - say - in excess of the Prime Minister's £200,000 to publish details of their remuneration," he said.
Additionally, the Conservative Party says it would appoint a Treasury minister, who would be based largely in Brussels, with specific responsibility for European financial regulation.
Breaking up the banks
Moving on from his earlier calls to scale down the size of banks deemed too big to fail, Cable floated the idea of breaking up part-nationalised Royal Bank of Scotland and Lloyds before they are returned to private ownership.
"The Lloyds-HBOS merger should be unscrambled as part of this process and Royal Bank of Scotland should also be split with its investment banking operations floated off," he said.
In contrast, the Conservative Party says the banking sector should be subject to a competition review before stakes in part-nationalised lenders Royal Bank of Scotland and Lloyds are sold off. "In future, high street banks that engage in high-risk investment banking should pay a penalty in the form of "much higher capital requirements", they added.
However, the British Bankers' Association warned that "change needs to be properly and systematically managed".