The FSA was ‘seduced' by the long boom of the late 20th and early 21st centuries, says Lord Turner.
Speaking at a Parliamentary Select Committee hearing today, the FSA chairman says regulators and banks became complacent due to an uninterrupted decade of economic growth, and believed it would never end.
The hearing, tackling the issue of whether banks should have been considered ‘too big to fail', heard there can be no guarantees that tighter regulation might prevent a future crisis.
Turner says the size of UK banks is not important, believing a multitude of smaller banks could still have become over-exuberant when lending.
High capital liquidity requirements, and macro-prudential rules which constrain credit supplies during an economic upswing may be more important to maintaining financial stability than limiting the size of banks, he adds.
"Everyone was seduced by the long boom. We were often led astray in the past by complicated mathematical rules," Turner says.
"Regulators failed to notice the inherent weakness in that position."
He told MPs there is little risk of complacency in the short-term, as the memory of the crisis is still fresh in the minds of banks and regulators.
However, he says there is a need to ensure the right regulation is in place to prevent similar system risks arising in the future when the memory of the crisis begins to fade.
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