Britain's financial regulator will be scrapped and the Bank of England given sweeping new powers as part of a major shake-up of the system.
The Financial Services Authority "will cease to exist in its current form" in 2012, George Osborne will say in his first Mansion House speech.
The Chancellor will say the tripartite system of regulation: the FSA, the Bank of England and the Treasury, will be abolished.
"As many of you know, I have my profound doubts about the tripartite system," he will say.
"This is not a commentary on the quality or dedication of the staff of the Financial Services Authority, the Bank of England or indeed the Treasury.
"It is instead a reflection on what has gone wrong and what may continue to go wrong unless there is change."
Mr Osborne will say the system "utterly failed" to identify a "rapid and unsustainable increase in debt" which lay at the heart of Britain's financial crisis.
"Inflation targeting succeeded in anchoring inflation expectations, but the very design of the policy framework meant that responding to an explosion in balance sheets, asset prices and macro imbalances was impossible.
"The Bank of England was mandated to focus on consumer price inflation to the exclusion of other things.
"The Treasury saw its financial policy division drift into a backwater.
"The FSA became a narrow regulator, almost entirely focussed on rules based regulation.
"No-one was controlling levels of debt, and when the crunch came no one knew who was in charge."
Mr Osborne will say the Bank of England must be the overall regulator of Britain's financial system.
"In the agreement that forms the basis of this coalition government, we stated our intention to give the Bank of England control of macro-prudential regulation and oversight of microprudential regulation," he said.
"We have now decided how we will give effect to that intention."
Four new bodies will be created under the reforms: a "prudential regulator", operating under as a subsidiary of the Bank control; a Financial Policy Committee at the Bank; a Consumer Protection and Markets Authority and an agency to deal with "serious economic crime".
Current chairman of the FSA, Hector Sants, will oversee the transition and will become the first new deputy governor of the Bank of England and chief executive of the new prudential regulator.
Sky's political correspondent Glen Oglaza said: "George Osborne believes the system failed spectacularly because the three separate bodies didn't understand how they were supposed to work together, and none was responsible for the debt.
"So when the crisis came, no one had any idea how to deal with it.
"He believes that giving the Bank far greater power will help prevent similar crisis in future."
Ben Blackett-Ord, who used to worked for the FSA and is now Chief Executive of regulatory specialists Bovill, said: "From the point of view of a lot of City firms, the issue is not who's in charge, but actually whether they will in effect be subject to different regulatory regimes for different parts of their business."
Speaking on Jeff Randall live, he said that the big issue was systemic risk.
But, he added: "I think the way to control systemic risk is actually through prudential and capital requirements, and not through trying to legislate what banks can and can't do."
Dr Alistair Milne of the Cass Business School, who used to advise the Bank of England, said all of the regulators missed the big picture in the run up to the crisis.
"The real issue is making sure that somebody's looking at the big picture," he told Randall.
"And if these systemic problems can be spotted before they really get out of hand."
The Financial Services Authority "will cease to exist in its current form" in 2012, George Osborne will say in his first Mansion House speech.
The Chancellor will say the tripartite system of regulation: the FSA, the Bank of England and the Treasury, will be abolished.
"As many of you know, I have my profound doubts about the tripartite system," he will say.
"This is not a commentary on the quality or dedication of the staff of the Financial Services Authority, the Bank of England or indeed the Treasury.
"It is instead a reflection on what has gone wrong and what may continue to go wrong unless there is change."
Mr Osborne will say the system "utterly failed" to identify a "rapid and unsustainable increase in debt" which lay at the heart of Britain's financial crisis.
"Inflation targeting succeeded in anchoring inflation expectations, but the very design of the policy framework meant that responding to an explosion in balance sheets, asset prices and macro imbalances was impossible.
"The Bank of England was mandated to focus on consumer price inflation to the exclusion of other things.
"The Treasury saw its financial policy division drift into a backwater.
"The FSA became a narrow regulator, almost entirely focussed on rules based regulation.
"No-one was controlling levels of debt, and when the crunch came no one knew who was in charge."
Mr Osborne will say the Bank of England must be the overall regulator of Britain's financial system.
"In the agreement that forms the basis of this coalition government, we stated our intention to give the Bank of England control of macro-prudential regulation and oversight of microprudential regulation," he said.
"We have now decided how we will give effect to that intention."
Four new bodies will be created under the reforms: a "prudential regulator", operating under as a subsidiary of the Bank control; a Financial Policy Committee at the Bank; a Consumer Protection and Markets Authority and an agency to deal with "serious economic crime".
Current chairman of the FSA, Hector Sants, will oversee the transition and will become the first new deputy governor of the Bank of England and chief executive of the new prudential regulator.
Sky's political correspondent Glen Oglaza said: "George Osborne believes the system failed spectacularly because the three separate bodies didn't understand how they were supposed to work together, and none was responsible for the debt.
"So when the crisis came, no one had any idea how to deal with it.
"He believes that giving the Bank far greater power will help prevent similar crisis in future."
Ben Blackett-Ord, who used to worked for the FSA and is now Chief Executive of regulatory specialists Bovill, said: "From the point of view of a lot of City firms, the issue is not who's in charge, but actually whether they will in effect be subject to different regulatory regimes for different parts of their business."
Speaking on Jeff Randall live, he said that the big issue was systemic risk.
But, he added: "I think the way to control systemic risk is actually through prudential and capital requirements, and not through trying to legislate what banks can and can't do."
Dr Alistair Milne of the Cass Business School, who used to advise the Bank of England, said all of the regulators missed the big picture in the run up to the crisis.
"The real issue is making sure that somebody's looking at the big picture," he told Randall.
"And if these systemic problems can be spotted before they really get out of hand."