The economic crisis happened due to multiple failures in policy and practice, Financial Services Authority chairman Lord Turner said in his speech at Mansion House.

He apologised for the FSA’s own failures as in April 2008 their internal audit report sharply criticised supervisory failures which allowed Northern Rock to pursue highly risky expansion.

Lord Turner admitted his own review in March 2009 identified severe deficiencies in UK and global banking regulation and in December 2011 their report on RBS described supervision was insufficiently focused on capital, liquidity and asset quality - "the trinity which should be at the core of good prudential supervision".

“In the supervision of banks the FSA made huge mistakes: and has acknowledged them – and changed radically in response,” Lord Turner said. “But it’s important to place FSA supervisory failures in context, because if we tried to fix the problems of the past simply by supervising more intensely and better, we would fail to ensure a more stable system.”

The deficient rules on bank capital and liquidity didn’t just happen in the 8 years before the crisis, he said, but reflected several decades of policy error which allowed the banking system to transition to excessive leverage and inadequate liquidity.

He said: “The crisis was not a bolt from the blue – it arose from poor supervision, bad rules and structures, and from dangerous cultures – and the errors made by regulators, economists, central bankers and policy makers, as well as bankers themselves.

“A lot of apparently very clever people got it very wrong, and the ordinary citizen suffered. We have to do better in future.”

The FSA was asked to do too much, he said, in combining prudential and conduct supervision, which require separate approaches within one organisation, resulting in divided management attention. In addition, neither the Bank of England nor the FSA adequately focused on systemic risks created by increasing leverage, booming credit supply and asset prices, and the development of shadow banking.

With this, the culture within major banks was driven by short-term return and not focused on long-term risks, focused on sales and not customer value, and this increased the danger that tax payers would end up bailing them out, he said.

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