The Financial Services Authority is the worst financial regulator in the world. But it is not so bad that it can’t be made worse by Adair Turner,” growled one of the City’s leading figures following confirmation that Lord Turner would be the FSA’s new chairman.

The statement may be on the extreme wing of City opinion. But it underlines the scale of the task Lord Turner is taking on.

The supervisory failures over Northern Rock have blown the FSA’s reputation out of the water and led to a crisis of confidence in the organisation.

Morale is low and the FSA is said to be finding it increasingly difficult to recruit good people.

The anti-FSA mutterings in the City, which until last August had been getting fainter, are getting louder again.

While the FSA still has many admirers on Wall Street, London's lead over other financial centres feels like it is narrowing. The fight against financial wrongdoing – as measured by fines and scalps – seems stalled. And perhaps the biggest prize of all, getting a fairer deal for ordinary consumers, seems as elusive as ever.

FSA officials seem to spend a great deal of time studying the fine print in financial advertisements. But they missed the biggest potential disaster since the the authority’s formation – Northern Rock’s business model – which was staring them in the face.

Increasingly now, the FSA has no one to blame but itself. It already has sweeping powers and when it asks for additional weapons, it gets them, in recent months winning additional powers in banking supervision and dramatic new powers to offer witnesses immunity from prosecution. It also has plenty of resources in the form of a 2,000-strong army of well rewarded and well qualified staff.

What it lacks, is a can-do culture. This is a bureaucracy that still measures effectiveness in terms of numbers of lever-arch files filled and length of meetings attended. It is an organisation with a bottomless capacity to create consultative documents but less appetite to root out bad behaviour and punish it.

Its instinctive reaction is to create more rules for everyone, including the innocent majority, rather than to go out and challenge the guilty minority. Its senior people rejoice in issuing myriad warnings and sermons, but then tend to see their work as done.

Lord Turner’s experience of business and bureaucracy make him an attractive candidate for the job. (Quite why he wants it is less clear). He has one foot in Whitehall and one in the Square Mile, but is not seen as too much of a City insider – in spite of his service over the years at Merrill Lynch, Standard Chartered and Paternoster. And as a fully paid-up member of the great and good on government working parties should help him to avoid the more obvious elephant traps of public life.

In the City he may be regarded with a little suspicion. His relations with new Labour when running the CBI in the mid1990s were seen as a little bit too cosy at times. His pro-business credentials cannot be doubted, but some in the City see him as too cerebral and technocratic with little feel for the shopfloor of financial services.

It is providing leadership that may be Lord Turner’s biggest challenge. As part-time chairman, he cannot do much about the minutiae of the regulatory work.

But culture works down from the top. The FSA needs someone with the capacity to inspire the troops into enforcing better behaviour and preventing new disasters without piling up costs and stifling innovation. If Lord Turner can achieve that, he will earn his peerage all over again.

david.wighton@thetimes.co.uk

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