The UK Financial Services Authority (FSA) may live to fine another day despite being lined up for the chop before the election.

The Tories had planned to hand over banking supervision to the Bank of England, but by entering into a coalition in order to secure a majority in the Houses of Commons, the plan has been watered down.

The City let out a huge sigh of relief, as it had feared a major overhaul at this delicate stage in the economic cycle would create huge unease and upheaval in the industry.

While the Bank of England (BOE) will be given macro-prudential control – monitoring systemic risk in the economy – the Liberal Democrats forced the Tories to back down on their insistence that the BOE should also be responsible for regulating individual banks.

It was a no-brainer for Tory Leader David Cameron, who was so desperate to become Captain and Chief , one feels, he would have done almost anything to get into Downing Street.

So what does it mean now?

Vince Cable, who missed out on the Chancellor of the Exchequer job, is driving the bus it seems.

Instead of managing the nation’s empty purse (£263 billion in the red), he has landed the role of Business Secretary and also a key position in the new Commission that sits above the FSA.

Both parties have agreed to impose a banking levy and to crackdown on bonuses, to create more competition in the banking industry and explore ways for banks to issue more loans to small businesses.

An independent commission will consider breaking up the big banks, which combine retail and investment banking arms, and will then report back within a year.

Cable is an outspoken advocate of separating retail and investment banking activities – a move which would affect the core banking models of RBS and Barclays.

Meanwhile George Osborne, the new Chancellor of the Exchequer, is chairing an independent commission tasked with examining the case for splitting the banks, but it is understood he is personally against the move proposed by Cable.

As for the FSA’s Retail Distribution Review (RDR), it seems that it is business as usual there as the FSA, largely unchanged under the new Government, has the mandate to proceed with its planned reshuffle of the advice and asset management industry from a retail investment point of view.