Details of new Bank of England financial regulatory powers published

The Financial Services Bill will also provide the Chancellor of the Exchequer with new powers over the Bank of England when public funds are at stake, aimed at removing the "confusion over who was in charge" which aggravated the last financial crisis.

At a lunch with British business leaders at the World Economic Forum in Davos Chancellor George Osborne said the new powers would enable the Chancellor of the day to order liquidity support for individual banks, to unwind a bank's operations and take other actions involving taxpayers' money.

"During normal times the independent Bank of England will be responsible for prudential regulation and systematic stability, accountable to Parliament; but in a crisis, when taxpayers' money is at risk, both the responsibility and crucially the power to act will rest with the Chancellor of the day," he said in a speech.

"I hope that we will never again see the paralysis and confusion that did so much damage when the latest crisis hit," he added.

The Government said that it hoped its proposals would become law by the end of this year, and that the new system would be operational from early 2013.

The Financial Services Bill dismantles existing regulator the Financial Services Authority (FSA) and hand most of the day-to-day regulation of and supervision of banks, building societies and insurers to a new Prudential Regulation Authority (PRA) within the Bank of England. A new Financial Policy Committee (FPC), also within the Bank, will address wider 'macro-prudential' issues that may threaten economic and financial stability, while a new Financial Conduct Authority (FCA) will handle conduct and compliance issues.

The FCA will also take over consumer credit regulation, including the responsibility for so-called 'payday loans', from consumer protection regulator the Office of Fair Trading (OFT) the Government said.

Presenting the Bill to Parliament Financial Secretary Mark Hoban said that the previous "tripartite" system, which split regulatory responsibility between the Treasury, Bank of England and the FSA, was "not fit for purpose".

"The Government has taken the necessary action to tackle the difficult and dangerous legacy left behind by the financial crisis... We've listened to the views of stakeholders following an unprecedented period of consultation, and are determined to strengthen the financial system in a way that safeguards financial stability and protects consumers," he said.

However the draft law does not subject the Bank of England to the standard of scrutiny proposed by the Treasury Select Committee in a report published earlier this week. Rather than replacing its Court with an independent Supervisory Board, the Bank will instead set up an internal Supervisory Committee as a non-executive subcommittee of the Court. The Committee will, however, have the power to examine the merits of policy decisions.

The Bill also provides that future Bank of England governors serve a single eight-year term rather than the current renewable five-year term. Current governor Sir Mervyn King's term is due to expire in 2013.