Liz Truss should create a new City super-regulator to liberate businesses from red tape if she becomes Prime Minister, the former chairman of Lloyds has said.
Lord Blackwell, a former adviser to John Major and Margaret Thatcher who led the FTSE 100 bank's board until last year, said he would back a merger of the Financial Conduct Authority and the regulatory arm of the Bank of England.
Ms Truss, the Foreign Secretary, is reportedly considering the move if she wins the Tory leadership race as part of efforts to liberate the banking system from counterproductive rules.
Lord Blackwell said that the existing financial watchdogs frequently "conflict or pull in different directions" and "leave it to the big institutions they're regulating to sort out the conflict".
Truss will consider merging the Financial Conduct Authority (FCA), the Bank's Prudential Regulation Authority (PRA) and the Payments Systems Regulator into a new body if she wins the leadership race, insiders told the Financial Times.
Lord Blackwell said: "I've been arguing with both the PRA and FCA for some time that they ought to get together and agree on a single set of priorities.
"When I've raised this with them, they've said these conflicts are too difficult to resolve.
"There's no reason why the two institutions couldn't have their two teams working together, but they find it difficult to do that because each of the regulator's teams wants to be the top dog - the idea of cooperation doesn't work in practice.
"I came to the idea some time ago that the only way to streamline this and simplify it was to put the two institutions together."
The regulators are widely expected to push back on the move.
A battle over how to best oversee Britain's financial system has been going on for decades.
In 1997, Gordon Brown wiped out what he deemed to be an old-boy City network of regulation centred on the Bank of England and replaced it with the Financial Services Authority (FSA), though he later admitted he made a “big mistake” in tackling financial regulation before the banking system collapsed.
George Osborne then announced in 2010 that he would split the FSA into two main new bodies, the FCA and PRA, to improve consumer protection and better police the City in an effort to ensure financial stability was never threatened again.
The FCA has been heavily criticised in recent years for dragging its feet on investigations and missing red flags before scandals such as the London Capital Finance mini-bond collapse.
Lord Blackwell said he would ideally like any new regulator to be put under the watch of the Bank of England and staffed with more senior people.
He added: "Twenty-odd years ago, the Bank of England had supervisory teams.
"A supervisory team was made up of relatively senior people who took the time to understand the particular issues around a large bank or insurance company and had a sensible discussion with the chief executive or financial director about what they were doing.
"The regulators, by contrast, have a set of rules and scores of fairly junior people who aren't there to make judgements and only operate by trying to enforce the rules."
But the former regulator Lord Turner, who was chairman of the FSA during the financial crisis, argued that a merger will not solve any current issues.
He said: "Any organisational structure that you have has problems. Solve those problems by changing the organisational structure and you will create new problems.
"Politicians have a bias to assume the solution to problems is organisational change because it gives them something to say.
"Every time, there's a lot of activity and a lot of diversion of focus. If I had to go for one system, I would go for the current system."
A former bank chief executive who has worked closely with the regulators agreed that a merger would not be the best solution.
He said: "It seems like a silly idea to me, it would just be a distraction.
"If there are concerns about the effectiveness of either organisation then deal with those concerns without the faff of an integration process," he said. "This seems to be a half-baked idea."