A powerful new "financial policy committee" (FPC) at the Bank of England has been unveiled by the government.
It will oversee the government's new system of regulators, set to replace the Financial Services Authority (FSA).
FPC members will include Donald Kohn from the US Federal Reserve, and Sir Richard Lambert, until recently head of the Confederation of British Industry.
The FSA will be split up into two new bodies tasked with curbing risk-taking by banks, and protecting consumers.
The moves follow Chancellor George Osborne's decision last summer to abolish the old FSA, whose previously hands-off approach to financial regulation was criticised in the wake of the 2008 financial crisis.
The new 12-person committee will be organised along similar lines to the Bank of England's existing monetary policy committee, with a mixture of internal appointees and independent experts from outside the Bank.
The Treasury has announced who will sit on an interim version of the FPC during a transition period this year until the FSA is formally scrapped. Members will include:
- Mervyn King, the Bank governor, who will chair the committee
- four other senior Bank of England staff
- Donald Kohn, who served as number two at the US Federal Reserve during the financial crisis
- Sir Richard Lambert, formerly head of the CBI
- Michael Cohrs, an investment banker who has worked at Deutsche Bank and Goldman Sachs
- Alastair Clark, a long-time adviser to the Bank and the Treasury about financial stability
- Lord Turner and Hector Sants, respectively chairman and chief executive of the FSA
The committee will eventually have a fifth independent expert added to it.
Its job will be to spot and contain risks within the UK financial system, and to work with regulators in other countries when the risks are international in nature.
In order to stop risky financial activities from simply migrating into unregulated parts of the economy, the FPC will also be allowed to expand its own remit.
However, in order to prevent the FPC from being too draconian in clamping down on the banks' activities, it will also be required to consider the longer-term impact of its decisions on economic growth.
The committee will oversee, and have the power to instruct, two new financial watchdogs to be formed out of the carcass of the FSA, outlined in a new government paper.
A "Prudential Regulation Authority" will ensure that banks and other financial firms do not take on too much debt or make excessively risky investments.
The authority will work closely with the Bank committee, and will be able to temporarily penalise excessive lending - or certain types of loans like mortgages - in order to stop market bubbles from forming.
Meanwhile a "Financial Conduct Authority" (FCA) will be tasked with protecting consumers from sharp practices, and making sure that workers in the financial services sector comply with rules.
In the worst case, it will be able to ban financial products that it deems inappropriate for ordinary customers and censor promotions it considers misleading.
Peter Vicary-Smith, chief executive of the consumers association Which?, gave the new regulator an enthusiastic reception.
"It's... encouraging that the new regulator looks set to ditch the FSA's hands-off approach to product regulation and be willing to intervene immediately to ban toxic products," he said.
"The FCA must proactively stand up for the interests of consumers and actively promote competition, so that there are stronger incentives to treat customers fairly and offer good value for money."
The FCA will also be given a role in policing competition amongst financial firms.