Peers call for Bank of England to be given lead role in a crisis.
The tripartite authority - the Bank, the Treasury and the Financial Services Authority - failed to maintain stability because it was not clear who was in charge in a crisis, says a House of Lords report..
The Government should re-examine the tripartite system "as a matter of priority with the aim of ensuring a sharper focus on financial stability", the Economic Affairs Committee said.
Decision-making powers should be assigned among the tripartite authorities in areas currently ambiguous to "avoid ambivalence or dispute", it added..
Although peers said there was "no need to rush" towards all-embracing legislation, they also called for the Bank of England to be given executive responsibility for supervising the wider health of the financial system.
"Without a clear executive role, the Bank can do no more than talk about financial stability.
"This exposes it to reputational risk without generating any clear benefit," the report said.
The Government should "carefully consider" the case for putting the Bank in charge of more detailed banking supervision at the individual level, the report added.
If put into effect, this would leave the FSA only with responsibility for "conduct-ofbusiness" regulation over areas such as protecting consumers and tackling insider trading.
"The committee believes the FSA focused on its consumer protection role and failed to take sufficient steps to alleviate risks to the financial system caused by excessive debt and banks' ventures into complex and opaque financial instruments," it said..