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Wide-ranging measures to prevent Britain's troubled banking sector stumbling into another financial crisis will be announced later today.
A review led by Financial Services Authority chairman Lord Turner will herald a major shakeup of the banking industry. The Turner Review is expected to insist on a clampdown on risky lending, and curbs on bonus payouts. It will also demand that banks increase their capital reserves during the good times, to avoid a repeat of the credit crunch, and may make hedge funds liable to the same regulations as major banks.
The scope and scale of the Turner Review is an acknowledgement that City watchdogs have failed to keep bankers in check over many years.
Turner has already vowed that his report will amount to a "revolution" in banking. He told MPs last month that his predecessors had been wrong to pursue a light-touch approach to the banking sector, explaining that the FSA had not thought that its remit extended to checking whether a bank's business model was sufficiently robust.
"We were supervising people like HBOS within a particular philosophy of the way you do regulation, which I think in retrospect was wrong," Turner told the Treasury select committee. "It was not the function of the regulator to cast questions over overall business strategy of the institutions ... You may find that surprising."
Turner's views on pay will be particularly scrutinised given the public anger over 'rewards for failure', with some banks still paying out bonuses for 2008 despite running up huge losses during that year. He may call for bonuses to be structured to reward long-term success, and insist that banks which reward their staff so well should have to hold more capital to protect themselves from risky practices.
Gordon Brown has already argued that a global response is needed to avoid a recurrance of the problems that have crippled the banking industry, and Turner's report may include recommendations on this, as well as new rules on how bank's report their financial performance.
Peter Mandelson admitted today that financial regulation has not "kept pace" with the rapid evolution of the global economy.
"What happened, I think, was all the changes that were taking place internationally to the banking sector and the international financial system - what people call globalisation - was happening much further, much faster than anyone anticipated," the business secretary said this morning.
Appearing on GMTV, Mandelson declined to apologise for the financial crisis. "I think what we've got to say as a government is that, at the end of the day, we are in charge and we take the responsibility ... if there was anything that could or should have been better, " he said.
City experts also believe Turner's report - which was commissioned by Alistair Darling last October - could call for a shake-up of the tripartite system of regulation. Currently the Bank of England, the Treasury, and the FSA jointly oversee the financial sector, and MPs have warned that the collapse of Northern Rock showed that the system does not work well enough.
Turner, a former director general of the CBI and Merrill Lynch banker, joined the FSA last September. The FSA's reputation took a knock last month when Sir James Crosby resigned as deputy chairman after allegations that he sacked a whistleblower at HBOS when he ran the bank.
Turner has previously produced reports on climate change, and the pensions industry.
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