Tough powers for the Financial Services Authority to intervene in the running of Britain's banks will be embraced by Gordon Brown and Alistair Darling today.

International rules to curb the bonus culture will also be proposed in what is being seen as the biggest shake-up in regulation for decades.

Lord Turner of Ecchinswell, the chairman of the Financial Services Authority (FSA), will call for aggressive interventionist scrutiny of banks and other financial institutions. The current principles-based approach to regulation, relying on companies to conform to broad standards, will be replaced by a risk-based approach in which the watchdog requires banks to build up capital reserves in healthy economic times.

Lord Turner will back plans for much greater co-operation between regulators globally to try to stop future crises developing. He will say that British plans to relate bonuses to long-term performance should be adopted worldwide to prevent people working for international institutions evading controls.

The Turner report will propose that most bonuses are deferred until a deal has been proved to be successful rather than paid to a trader at the time the agreement is struck. The same approach should be introduced internationally by the Financial Stability Forum, the body that co-ordinates cross-national regulation, so that people cannot pick up their bonuses in a third country, Lord Turner will suggest.

Mr Brown will welcome today's report as a means of strengthening the FSA rather than returning regulatory powers to the Bank of England, which supervised the industry when Labour came to power.

But he will urge that Lord Turner's plan, which will also propose a clampdown on the shadow banking system and eventually subject secretive hedge funds to the same rules as banks, be adopted elsewhere. He hopes that it will be used as the basis for a deal at the G20 summit in London on April 2.

Lord Turner will suggest more co-ordination between regulators and central banks to spot signs that economies are overheating.

He will also suggest that the FSA should have pre-emptive powers to stop banks over-extending themselves if their capital reserves are not large enough to balance their loan book. It is argued that such powers would have stopped the takeover of ABN Amro by Royal Bank of Scotland.

Hector Sants, the chief executive of the FSA, said last week: “There is a view that people are not frightened of the FSA. I can assure you this is a view I am determined to correct. People should be very frightened of the FSA.”

He also hinted that the FSA was scrutinising the behaviour of senior bank executives in the time leading up to the crisis. Although none has been charged with wrongdoing, the FSA has powers to fine executives who break its rules and to ban them from the industry.

Signs of a sharp division of opinion over Lord Turner's approach emerged last night when Mervyn King, the Governor of the Bank of England, said that there should be a public debate over whether regulators should enforce a split between retail banks and the more speculative investment banks behind big City deals.

Some critics have called for rules barring high street banks from engaging in more risky investment banking.

Lord Turner said in January that he doubted whether such a separation “can or should” be made, but Mr King argued last night that it should be actively considered.“There are good arguments in favour - to separate the utility functions of a retail bank... from the casino trading of an investment bank,” Mr King said. He added, though, that there were also strong arguments against - notably that regulators could find it impossible to stop bailouts for investment banks if they were too important to be allowed to fail.

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