The problems in the system were highlighted by Northern Rock's failure
There has been fresh criticism of the way banks were supervised by the Treasury, Bank of England and Financial Services Authority (FSA).
The House of Lords Economic Affairs Committee said the so-called tripartite system had failed and must be reformed.
Its defects were highlighted by the failure of Northern Rock.
The report said the problem was that it was not clear who would be in charge in a crisis. It said the Bank of England should get a clear executive role.
The Lords' findings mirror the report of the House of Commons Treasury Committee, which said that the tripartite financial authorities had been insufficiently prepared to deal with Northern Rock's difficulties and needed to communicate better with each other.
"Without a clear executive role, the Bank can do no more than talk about financial stability. This exposes it to reputational risk without generating any clear benefit," the Lords' report said.
It recommended taking the responsibility for supervising the banking system as a whole away from the FSA and giving it to the Bank of England.
The committee's chairman, Lord Vallance of Tummell, told the BBC that the new powers that the Bank of England has been given by the Banking Act 2009 do not go far enough.
The report criticised the FSA for concentrating on its consumer protection role at the expense of its responsibility for maintaining financial stability.
The Lords also called for the authorities to be given more power over foreign banks operating in the UK.
"The degree of control that our supervisors and regulators here in the UK have over bank branches of foreign banks is very limited," Lord Vallance said.
"If there is a crisis then the money tends to rush back to the home of the bank itself leaving the problem with the UK taxpayer."