During a grilling at the Treasury select committee last Wednesday, Lord Turner claimed the regulator had been put under political pressure not to be “heavy and intrusive” with banking regulation, and instead to use a “light-touch” approach.
He blamed the “political philosophy” of past regulation for missing the problems in now-nationalised banks.
Turner said: “We had a philosophy of how we did regulation, that focused on organisation structure, processes, systems – it fairly overtly said it was not the function of the regulator to cast questions over the overall business strategy of the institution. With hindsight, I find it surprising but it is the case.
“That existed in a political philosophy where all the pressure on the FSA was not, are you looking these business models, but to say, why are you being so heavy and intrusive, can’t you make the regulation light touch?”
But Turner assured MPs that the FSA recognises these faults and is changing the way it regulates. He said: “It is going to be fit for purpose, it is a revolutionary approach. It is a long way through necessary changes. Both us and the Bank of England should have a significant and formal role in macro-prudential analysis.”