The Financial Services Authority (FSA) is consulting on plans aimed at avoiding another banking crisis and reducing reliance on taxpayer support.
A consultation paper and a discussion paper have been published by the group regarding recovery and resolution plans for financial firms.
The FSA said the 2008 crisis highlighted the need for banks to have effective recovery plans in place.
Had these been established prior to the crisis, institutions may have been able to cope and business failures could have been avoided, it claimed.
The FSA wants all financial firms to develop and maintain a set of recovery plans that can be implemented if trouble brews in the industry.
These plans should include a number of "material and credible" options to cope with both specific and market-wide stresses, as well as options to address capital shortfalls, liquidity pressures and profitability issues.
In terms of resolution, firms would be required, under the watchdog's proposals, to develop plans showing how they will wind-down and carry out insolvency administration if the company does fail.
They would have to ensure that resolution can be carried out without public solvency support and that decisions and actions can be made and executed quickly.
Thomas Huertas, a member of the FSA's executive committee, said: "The financial crisis highlighted that firms failed to consider what they would need to do when faced with a potential failure of their business models.
"The result meant that billions of pounds of public money was required to support financial institutions around the globe and that financial stability was put at risk."
He added: "This consultation will play an important role in helping authorities develop their policy in this complex area.
"By putting in place clear plans to recover from a crisis, or wind-down in an orderly manner, firms can take the necessary action to reduce the impact on financial stability and reduce taxpayer support."