Tories vow to scrap FSA and give power to Bank of England

David Cameron said he would scrap the Financial Services Authority, ending the system of control brought in by Gordon Brown more than a decade ago.

He called it a "policy failure of historic proportions" and promised to hand most of its powers to the Bank of England.

"Those bad debts, those risky loans, the soaring house prices, the systemic risk, the asset price bubble — they all fell between the cracks of the system," said Mr Cameron.

Shadow chancellor George Osborne threatened a punitive tax on banks paying big bonuses. Writing in today's Standard, he said: "People need to wake up and remember some hard truths. The reason why the banks are making money again is that taxpayers have bailed them out."

Other key Tory plans include:

Handing sweeping powers to the Bank of England to oversee the health of the economy and to regulate the City.

Naming and shaming banks and building societies for mis-selling financial services or lending recklessly.

Dropping previous Tory plans to break up the biggest banks to split risky investment from high street branches.

Elite bankers would have to publish pay and confirm they are resident UK taxpayers.

The decision to beef-up the Bank of England sets the Tories at loggerheads with Labour, who have published plans to enhance the role of the FSA and keep the tripartite structure under which responsibility is shared between the FSA, the Bank and the Treasury.

Mr Osborne would have the Bank regulate pay structures, risk, complexity and size of financial institutions, and decide how much capital each would be required to hold.

A Consumer Protection Agency would stand up for ordinary people, with information online showing customers if they would be better off switching banks. There would be a Treasury Minister for European financial regulation.

Mr Osborne dropped plans to require banks to split up retail and investment activities.

Vince Cable of the Liberal Demorctas unveiled rival plans which involve keeping the FSA but breaking up the bailed-out Royal Bank of Scotland and Lloyds Banking Group.

He said the rescued banks had become "the financial equivalent of Chernobyl". Mr Cable called for a Financial Stability Committee led by Bank of England governor Mervyn King.