Reckless bankers could be stripped of bonuses up to 10 years after they are awarded under plans set out by the Bank of England.
The changes are part of proposals to introduce a tough new regime for lenders in the wake of the financial crisis.
Newly confirmed rules - which will come into force in January in time for the next round of City bonuses - will mean pay-outs can be clawed back up to seven years after they are handed out.
These rules, finalised by the Bank's Prudential Regulation Authority (PRA), will not apply retrospectively, partly for fear this could result in legal action.
But as part of a further consultation, authorities said they were looking at extending clawback beyond seven years from the date of a bonus award to enable the term to be extended by three years for senior executives.
This could be activated if there were an ongoing internal or regulatory probe over a "potential material failure" at a bank which might be linked to the boss in question.
The proposals from the PRA and City watchdog the Financial Conduct Authority (FCA) would also beef up firms' ability to recover bonuses for bosses even if already paid out "if risk management or conduct failings come to light at a later date".
In addition, they spelt out the role of the two bodies in being able to start criminal prosecutions, under existing legislation, against senior managers "where they take a decision that causes an institution to fail".
Business Secretary Vince Cable welcomed the moves, telling Sky News: "Enormous damage has been done to the UK by the collapse of the banking system.
"It must not happen again."
Shadow chancellor Ed Balls said the Bank was doing the right thing but critics warned of the risk of undermining the City by pushing talent and investment overseas.
A Treasury spokesman said: "This Government has been clear that banks must act responsibly in setting their pay policies, and we have consistently taken robust action to tackle inappropriate remuneration."
This latest announcement comes in the wake of recommendations last year by the Parliamentary Commission for Banking Standards.
It follows the financial crisis and a series of scandals in recent years, such as the mis-selling of payment protection insurance (PPI), which has already cost the banking industry more than £20 billion in compensation costs so far.
Bonus rules have been strengthened since the credit crunch struck, with bank payouts deferred for three to five years and made largely in shares.
But there has been frustration that millions of pounds in bonuses paid out in the run-up to the banking meltdown are untouchable.
This latest consultation sets out plans to extend bonus deferrals to seven years for senior managers, but stops short of a longer nine-to-eleven year period that might reflect the impact of strategic decisions they have made as this could damage incentives.
They also outline a new approval regime for senior bankers in positions with the potential to cause the firm to fail, as well as certification rules for a second tier of staff who could pose harm to the bank or customers.
The regime will enhance regulators' ability to hold top managers to account and also require banks to vet their fitness for the position regularly even after their appointment.
Further proposals look at how to shut down the loophole of bankers evading reductions in pending bonuses by changing employer.
The plans also strengthen the existing presumption against discretionary payments from bailed-out banks.
Final rules based on the consultation will be published by the FCA and PRA in early 2015.
FCA chief executive Martin Wheatley said: "How a firm conducts its business and treats its customers must be at the heart of how it operates.
"This has to start at the top.
"Today's consultations mark a fundamental change in the regulators' ability to hold individuals to account, which is what the public expects of us."
Barclays chief executive Antony Jenkins told BBC Radio 4's Today programme the clawback rule was a good idea in principle and "could be extremely useful".
But CBI director-general John Cridland sounded a note of caution.
He said: "Pay deferral and clawback will make sure that performance and remuneration are aligned for the long-term and can help keep conduct in check.
"But as these new rules are amongst the toughest in the world, we need to be careful we don't create uncertainty which might make it increasingly hard to attract talent to London."
Mark Littlewood, director-general of the Institute of Economic Affairs, a free market think-tank, criticised the plans.
He said: "If the Bank of England are serious about fostering an ethical culture in the UK banking sector, a clawback scheme on bonuses is entirely the wrong way to go about it.
"The financial industry is already one of the most heavily regulated in the economy.
"If we persist with this upward trend of regulation, we risk undermining the City and pushing both talent and investment overseas."
Samantha Mangwana, specialist employment lawyer at Slater & Gordon, said: "It is not clear if these proposals are lawful.
"It may not be possible ultimately to recover payments from individuals seven to 10 years down the line if they no longer have the funds.
"Bonuses that have long since been spent on school fees, a lavish lifestyle, and have become the property of others may not realistically be retrieved."