The admission came was Lord Turner and the FSA’s chief executive Hector Sants were grilled by the Treasury Select Committee.
MP Michael Fallon questioned the justification for a regulator that seems to be failing to do its job.
He says: “What is the point of a regulator that costs us £400m this year, that employees 2,500 people, that is given 10 big British banks to supervise and allows five of them to collapse?
“What we want to know is, is the FSA actually fit for purpose?”
Lord Turner failed to confirm that the regulator is well-placed to carry out its role, instead admitting: “It is going to be fit for purpose given the changes we going to make and we are making.”
He concedes that in supervising banks such as HBOS mistakes were made despite following the regulatory rulebook.
But Lord Turner adds: “We were supervising banks like HBOS within a particular regulatory philosophy which I think in retrospect was wrong.
“[The regulation of HBOS] was a competent execution of a style and philosophy of regulation which was in retrospect mistaken.”