Hector Sants, chief executive of the Financial Services Authority, which will be replaced by the Prudential Regulation Authority (PRA), said the new agency will also be given more powers to block bonuses and dividend payments by UK banks.
The new powers will come under a more intensive supervisory approach that has been adopted by the FSA since the financial crisis.
Sants said the PRA will utilise powers to block bonuses if it believes that such payments break new rules on risk management and capital adequacy.
His comments emerged as the Bank of England and the FSA published a joint paper, entitled The Bank of England, Prudential Regulation Authority – Our approach to banking supervision, which sets out how the PRA will supervise banks, building societies, credit unions and investment firms.
Hector Sants, PRA chief executive designate, said: “The PRA’s purpose is fundamentally different from that of previous regulatory regimes and will lead to a significantly different model of supervision to that which was in use pre-2007.
“In designing this new model we have incorporated both the lessons learned from the last financial crisis and those from firm failures of the past.”
He said the new regulatory model will be based on forward looking judgements and will be underpinned by the fact that the PRA has a single objective: to promote the stability of the UK financial system.
Andrew Bailey, FSA director of UK banks and building societies and PRA deputy chief executive designate, said: “Maintaining financial stability is an objective in public policy which we should all value highly. We have seen what happens when we lose it.
"But achieving and maintaining financial stability does not mean that we have an industry in which no-one can fail."
Angela Knight, chief executive of the British Bankers’ Association (BBA), said the trade body supported “sensible reform” and the formation of the PRA to “take forward the lessons we have all learned.”
She added that the new body needed to attract high calibre staff as supervisors.