Mr Osborne said the current regulatory system did not identify the crisis
Chancellor George Osborne has confirmed that he will give the Bank of England the key role in regulating the UK financial sector.
In his first Mansion House speech, Mr Osborne said he would abolish the current system of financial regulation.
The Financial Services Authority (FSA) will "cease to exist in its current form", he told the City of London.
He added that Financial Secretary Mark Hoban would set out further details to parliament on Thursday.
Earlier, Mr Osborne had told the House of Commons that Sir John Vickers, former head of the Office of Fair Trading, would look into the potential break-up of Britain's biggest banks.
Tripartite criticism
In his first keynote address at the Lord Mayor's annual dinner to the City, Mr Osborne said the new coalition government was proposing a new system of regulation that "learns the lessons of the greatest banking crisis in our lifetime".
Mr Osborne paid tribute to Alistair Darling, his predecessor as chancellor, but went on to criticise the current tripartite system of regulation, which divided responsibility between the Bank of England, the FSA and the Treasury.
"No one was controlling levels of debt, and when the crunch came no one knew who was in charge," he said.
As expected, he confirmed that the FSA would be broken up and the part that monitors financial institutions would operate as a full subsidiary of the Bank of England.
He also said the government would create a powerful new Financial Policy Committee at the Bank of England.
Bank tax
Mr Osborne said that the process of reforming the regulatory system would be completed by 2012.
He also revealed that he had asked Hector Sants, the chief executive of the FSA who had been due to leave this summer, to stay on to oversee the transition and become the chief executive of the new "prudential regulator" charged with regulating banks and other financial institutions.
Andrew Bailey, currently chief cashier at the Bank of England, will become his deputy in the new regulator.
Andrew Bailey, currently chief cashier at the Bank of England, will become his deputy in the new regulator.
The chancellor also confirmed that the government would introduce a bank levy and "demand further restraint on pay and bonuses".
The chancellor also confirmed that the government would introduce a bank levy and "demand further restraint on pay and bonuses".
'Same coin'
Gordon Brown, made chancellor when the Labour Party won the 1997 general election, created the FSA following criticism that the Bank of England had failed to sufficiently regulate the UK's financial system.
But there was criticism of Mr Brown's move from people who thought the change gave far too much power to a single body. The FSA also came in for criticism for not doing enough to prevent or limit the crisis in the financial markets.
The governor of the Bank of England, Mervyn King, welcomed the new powers given to the Bank by the new government.
"Monetary stability and financial stability are two sides of the same coin. During the crisis the former was threatened by the failure to secure the latter," Mr King said in his speech, which followed the chancellor's.
Should the Bank of England play a greater part in regulating the UK financial sector? What would you like to see in next week's Budget?
Should the Bank of England play a greater part in regulating the UK financial sector? What would you like to see in next week's Budget?
