CHANCELLOR Alistair Darling was under fresh attack last night after it emerged that his plans to reform the banking sector contain no major change in the “tripartite” regulatory regime.

CHANCELLOR Alistair Darling was under fresh attack last night after it emerged that his plans to reform the banking sector contain no major change in the “tripartite” regulatory regime.

Setting out the Government's White Paper on financial reform to the House of Commons, Mr Darling said banks faced a “back stop” rule to prevent them lending too much and would also be forced to hold more capital and draw up emergency plans in the event of collapse.

However, in which could be seen as a snub to its governor, Mervyn King, the Chancellor rejected the Bank of England's call for greater powers.

Instead, the Financial Services Authority will be given increased responsibilities to intervene with banks on a case-by-case basis and a new Council for Financial Stability will be set up, including the Bank of England, the FSA and the Treasury with the Chancellor as chairman.

“Financial institutions in many countries simply took too much risk,” the Chancellor said. The changes would “reform and strengthen our financial system and rebuild it for the future”, he added, leaving it “stronger, more resilient and better able to serve the needs of our economy”.

However, shadow chancellor George Osborne called the tripartite regime “dysfunctional” and pledged to scrap it if the Conservatives won power.

Calling for the Bank of England to be given more powers, he said: “We don't need another divided committee, we don't want more divided responsibilities - we want clear lines of accountability that run all the way to Threadneedle Street.”

The Chancellor also called for a change of culture and better management among banks, adding that the FSA would report to him annually on how far the banks were complying on with the regulator's guidelines on pay, with the threat of penalties for those which failed to curb “irresponsible” remuneration policies.

But Liberal Democrat Treasury spokesman Vince Cable described the plans as “not so much a White Paper as a blank paper” and accused the Government of failing to send a sufficiently robust message to the banks that “excessive risk-taking and bonuses are simply unacceptable”.

British Bankers' Association chief executive Angela Knight said: “We welcome moves to create better co-ordinated financial stability jointly with the FSA and the Bank of England.

“Banking is a global business and reform needs to be thoughtfully handled so moves in the UK dovetail with those overseas ensuring the UK sector remains competitive, otherwise business could move away.”

On the plans to curb irresponsible pay, she added: “We are already working with the FSA on pay structures which reward individuals who contribute to long-term success and do not reward undue risk taking.”

CBI director-general Richard Lambert said: “We recognise the case for new regulations to ensure that financial crises of the kind we have experienced are not repeated.

“However, we do not see the advantage of pre-funding the already successful Financial Services Compensation Scheme. There is also a risk of over-regulating financial product design, which would hamper competition and innovation.”

However, he added: “The Government is right to make the existing tripartite system work better. In the Northern Rock crisis we did not know who was in charge. We will now.”