Chairman of the FSA, Lord Turner, said that the “light touch” style of regulating had led to the failure of dealing with fundamental problems within the banking system.

“There was a philosophy routed in political assumptions which suggested the key priority was to keep it light rather than ask more questions.” Turner said, adding that he thought the approach to regulation was “in retrospect, wrong.” 

His comments appear to point the finger at Gordon Brown, who introduced the regulatory system when he was chancellor.

Chief executive Hector Sants added: “I think there was a sometimes implicit, sometimes very explicit, philosophy that it was not the role of regulators to interfere with what the markets did.”

To make their stance even clearer, Sants said that it would have been “politically difficult” to restrict excessive mortgage lending before the onset of the credit crunch.

During the Treasury Select Comittee, Turner and Sants promised a “revolution” that would make the City watchdog more independent in regulating products and “fit for purpose.”