The Tory leader said the tripartite system introduced by Gordon Brown was a "policy failure of historic proportions" that was directly to blame for the crisis facing the country.
He dismissed the Government's proposed reforms as inadequate measures that jeopardise recovery, promising instead to give sweeping new powers to the Bank of England.
Under Conservative proposals, it will regulate City pay structures, risk-taking and the size of financial institutions, with the FSA swallowed up into a new consumer protection body.
The Government plans to keep the "tripartite" system - involving the Bank, the FSA and the Treasury - but introduce an overseeing Council for Financial Stability.
Launching the reform plans, Mr Cameron said: "The decisions that led to this crisis represent a policy failure of historic proportions. We now need deep, wide-ranging reform that matches both the magnitude of the crisis and the scale of the hardship inflicted on the British people.
"That reform must be based on a clear understanding of what went wrong in the first place and a clear determination to put it right."
The debt crisis had been "at best ignored and at worst encouraged", he said.
"For this, I believe the finger of blame points directly at the system of financial regulation established by Gordon Brown in 1997.
"At its heart was the tripartite system; a system in which no-one was looking at the big picture, no-one had responsibility and authority to act and no-one was effectively in charge.
"So those bad debts, those risky loans, the soaring house prices, the systemic risk, the asset price bubble - they all fell between the cracks of the system.
"I'm afraid the Government's proposals that all we need are a few more tweaks and a little bureaucratic tinkering are totally inadequate and risk preventing a recovery.
The Tory plan involves:
:: The scrapping of the tripartite system, with responsibility for maintaining financial stability handed to the Bank of England. The Bank would have a powerful new Financial Policy Committee, which would work alongside the interest rate-setting Monetary Policy Committee and include the Governor and Deputy Governor for Financial Stability, as well as independent external members;
:: New powers for the Bank of England to regulate the pay structures, risk, complexity and size of financial institutions, including requirements on those which put financial stability at risk to hold large amounts of capital to act as insurance to protect the taxpayer;
:: The abolition of the FSA and the combination of its consumer protection functions with parts of the Office for Fair Trading to create a new Consumer Protection Agency able to stand up for ordinary people on issues like bank charges and excessive interest rates for credit;
:: A new senior post within the Treasury for a minister with responsibility for European financial regulation, who would spend much of his or her time in Brussels fighting Britain's corner and defending the interests of the City of London;
:: A new competition investigation by the OFT and Competition Commission into the effect of mergers within the banking industry, particularly last year's creation of the giant Lloyds Group from Lloyds TSB and HBOS. Findings from the probe would inform a Tory government's strategy on returning banks in which the state holds a stake to the private sector, signalling the likelihood that they would not simply be sold as single entities.
The Tory proposals were unveiled as the Liberal Democrats called for the banks now in part public ownership to be broken up before being returned to the private sector.
The party's Treasury spokesman, Vince Cable, said Britain's banks had become "the financial equivalent of Chernobyl" and radical safety measures were required to make them less of a threat to the economy.
In a speech to the London Stock Exchange, Mr Cable said major reforms were needed to the banking regulation system, including measures to make it easier for large institutions to fail without the state being forced to step in and save them.
He said there was a long-term role for state banking in the UK economy, even after the current crisis has abated, and argued against a quick sell-off of the Government-owned banks.
"The Government has yet to grapple with the challenge posed by the Governor of the Bank of England: that if a bank is too big to fail, it is too big. One approach is to make it easier for big institutions to fail.
"Some aspects of the financial services industry are simply too big for the British economy to manage safely. The large, failed British banks are the financial equivalent of Chernobyl. Like the former Soviet Union, the UK became over-reliant on dangerous financial reactors.
"Britain has the highest share of banking assets in GDP of any major country, four times as high as the US. To prevent Britain from becoming the next Iceland, radical safety measures, like ones I have set out, are required.
"My approach to the City is not one of hostility, or of obsequiousness. I recognise its importance. But it needs 'tough love', not the freedom to run amok," he said.
Shadow chancellor George Osborne said: "I believe there is a case for separating some of the riskier investment banking activities, such as large-scale proprietary trading, from retail banking, but that it would not be sensible or, indeed, effective to impose separation unilaterally."
Mr Osborne said the pay of staff regulating financial services should be hiked so it was "something more akin to the people they regulate".
The extra pay could be funded by increasing the levy on firms, while the calibre of regulators could be boosted further through compulsory secondments from major companies.
He also signalled that, under a Tory government, a Treasury minister would be given responsibility for tracking financial services regulation emanating from the EU, and ensuring it fitted with Britain's interests.
City Minister Paul Myners said: "All the Tories are doing are moving most of the FSA into the Bank of England causing huge disruption and uncertainty just at a time when the regulators need to concentrate on reducing risk.
"It would cost millions, there would still be two regulators and the Tories are missing the point that consumer protection is important for financial stability - the regulation of mortgage selling being one example."
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