The regulators of the British financial system have, according to the boss of one of the country’s biggest banks, “made all the right decisions, but they have made them all at the wrong time”. The run on Northern Rock has damaged the reputation of the UK, he continued, “people have suffered, the country has suffered”.

It seems he is right. Britain’s system of financial regulation – the pride of Gordon Brown’s chancellorship – is no longer viewed from abroad with such admiration. Laurence Parisot, the president of Medef, the French employers’ organisation, says he was shocked by the sight of a run on a bank in the UK, adding: “I thought this could only happen in Argentina.” Christine Lagarde, the French Finance Minister, says she thought Mervyn King’s conduct “extraordinary”.

Until recently, as Richard Lambert points out, the British were used to seeing bank runs only in Christmas reruns of Mary Poppins. Thoughts of banana republics also crop up. To Mr Lambert’s credit, he has gone farther than joining in the hand-wringing.

In his most impressive speech yet as CBI director-general, he makes plain that the Government and the City authorities have made a bad situation at Northern Rock worse. By delivering the speech in Newcastle, he has come out and said what is long overdue: the South has failed the North. Rock’s board is, of course, chiefly responsible for the company’s failure. This was a problem that was born and bred in Newcastle.

However, it was let down by the triangle of authorities in London – the Treasury, the Bank of England and the Financial Services Authority.

Mr Lambert says his criticisms are not personal but structural. For all that, he has rightly held Mervyn King to account for trying to blame obscure laws for the Bank’s behaviour. And he has wisely mocked Alistair Darling for his folksy call for a return to “good old-fashioned banking”. Banking in years gone by was never that good, nor is nostalgia a strategy for overseeing the future of financial markets.

Mr Darling has aired the idea that if the Treasury is ultimately going to have to sign the cheque to bail out banks, it needs to take a greater role in overseeing them. This is suspect. It will undermine the independence of the Bank and it would encourage overzealous regulation in Whitehall.

The function of lender of last resort must, ultimately, lie with the Bank of England. To regain confidence up and down the country, the Bank will have to regain market savvy, restructure so that it is as one with the FSA and remind itself that, in the financial world, timing is everything.

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