Politicians deserve more blame for bank crisis, says FSA chief

Lord Adair Turner, chairman of the Financial Services Authority (FSA), warned that although "individual greed and error" do play a part in financial crises, "ill-designed policy is a more powerful force for harm".

He said Britain needs to move beyond the demonisation of City traders and recognise the fundamental mistakes made by policymakers if there is any hope of designing a new regulatory framework to prevent the events of 2007-8 from happening again.

Turner's remarks were delivered in a speech to the Mansion House in London just hours after deputy prime minister Nick Clegg warned that the government would take tough action against the banks if they continued to pay out "unjustified" bonuses. Clegg said the coalition government would not stand "idly by" if banks, particularly those bailed out by the taxpayer, handed out excessive rewards.

Turner was quick to mount a defence in the growing row between Westminster and the Square Mile by pointing the finger at policymakers for their flawed "philosophy of market regulation". Although Turner did not let the City off the hook for its "absurd bonuses" and "exotic, socially useless product development", he said those seeking to reform the financial system needed to look at the wider causes.

He also delivered a thinly veiled warning to businesses and households that reform of the financial system would spell the end of cheap credit. He said society had to accept that products such as mortgages, loans and other forms of debt would not be so easy to come by in a new era of financial regulation.

Turner threw his weight behind the recently announced Basel III reforms, although he admitted that in an ideal world, they would have been stricter.

He also echoed comments by Royal Bank of Scotland chief executive Stephen Hester that taxpayers should not in future have to bail out institutions previously considered "too big to fail".