President Obama will today announce sweeping reforms of the US financial system including a new regulatory agency, new powers for the Federal Reserve and a new supervisory council to monitor risk and prevent a recurrence of the financial turmoil that caused last year's market collapse.

The root-and-branch reform of the US financial system is to be announced today prior to a speech by Alistair Darling to the City of London when the Chancellor of the Exchequer will outline the lessons of the financial crash and and criticise the behaviour of bankers.

In his Mansion House Speech tonight, Mr Darling is expected to emphasise corporate governance, rather than new institutions, as the best way to prevent financial calamity in the future. His approach will be in contrast to the US initiatives to be announced later today which include new powers, new institutions and regulatory bodies.

The US President is proposing a Financial Services Oversight Council led by the Treasury Department which will oversee the entire US financial system.

A much-criticised US Treasury Unit, the Office of Thrift Supervision, will be closed. Instead, the Federal Reserve, America's central bank, will be given new and enhanced responsibilties to monitor risk and supervise large financial institutions, including non-banks such as American International Group, the insurance giant which was nationalised in order to prevent a meltdown of the global financial system.

Finally, the US president wants to create a new consumer regulator, the Consumer Financial Protection Agency, to regulate mortgage and credit card lenders and to prevent the abusive sub-prime lending practices that created the mountain of toxic debt that nearly brought downt the banking system.

"There is going to be streamlining, consolidation and additional overlap, so that you don't find people falling through the gaps, whether it's the consumer protection side, the investor protection side, the systemic risk that we need to make sure is avoided," said the President on Tuesday.

In contrast, Mr Darling will cast doubt on EU proposals for new institutions: “Already people are advocating new institutions and new tools to implement this approach. Institutions are important, so are the tools for them to do the job. But to concentrate only on institutions is to miss the point. At its heart, this is about judgments — making the right call at the right time.”

He will add that restricting the size of banks is not the answer. “Many people talk about how to deal with the big banks — banks so important to the financial system that they cannot be allowed to fail. I believe the right approach is to ensure that we, as well as the banks themselves, have plans for tackling failure.”

Mr Darling will assert that Britain led the world in stepping in to support banks. Had they been allowed to fail, the economy would have been brought to its knees.

“But having stabilised the banking sector, we are faced with the challenge of building a stronger, more efficient and more resilient financial sector in the future.”

Bank boards must focus on long-term wealth creation and not short-term profits, Alistair Darling will tell the City tonight, only hours after being criticised by a Lords committee.

Hinting at tough measures to strengthen corporate governance in the Walker review, now expected next month, the Chancellor will say that the process of learning lessons from the banking crisis must start in the boardroom. “Bank boards must have the right people, skills and experience to manage themselves effectively,” he will say in the Mansion House speech.

The speech comes as the House of Lords European Union Committee criticises the Government for imperilling British interests by failing to do enough to shape EU policymaking on future regulation. In a report published today, the committee says the Government’s thinking risks missing out on influencing policy in Brussels.

The committee criticised Lord Myners, the City Minister, for offering three differing versions of how he would like a proposed new pan-European regulator to be structured. It was also critical of Brussels for rushing out a proposed crackdown on hedge funds and private equity without full consultation.

Treasury officials denied that they were behind the curve, arguing that they had been fully engaged in the debate on better regulation for months.

In one of the most important speeches of his career, after strong suggestions that Gordon Brown considered moving him in the recent reshuffle, Mr Darling will tonight emphasise the importance of an international approach to regulation.

He will say: “The reality is that the fortunes of different countries are more interdependent than ever before and the links across borders — particularly in financial markets — are much deeper. Regulators cannot only look at their own backyard and hope to understand what is happening.”

But he will add that progress at a European and international level must not allow national regulators off the hook and must retain the vital link between home regulators and national governments.

Mr Darling will speak of the need for a “macro-prudential” approach to regulation, with a stronger focus on system-wide risks.

“This crisis has taught us that it is not enough to pass an individual firm as healthy. Regulators and central banks need to look more carefully at the system as a whole,” he will say.

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