Britain's chief financial regulator blamed Gordon Brown yesterday for contributing to the economic crisis, coming close to accusing him of stoking the credit-fuelled housing boom and bust.

Hector Sants, chief executive of the Financial Services Authority (FSA), said that the pro-debt view of government ministers was one of the structural failures that led to the crisis. He said that one problem was “a prevailing mindset of Government and society promoting the benefits of credit and asset inflation, notably in housing”.

The comments appear to be the first time that the FSA has directly criticised the Government for its role in creating some of the imbalances that led to the banking catastrophe of the past two years.

Lord Turner of Ecchinswell, the FSA chairman, and Mr Sants's boss, hinted last month to MPs on the Treasury Select Committee that the Treasury had put pressure on the FSA to regulate banks as lightly as possible, but he stopped short of direct criticism.

Mr Sants made his remarks in a speech to the National Association of Pension Funds, but made no further reference to the Government's role.

Mr Brown has refused to accept that he made policy mistakes as Chancellor in the years leading up to the crisis. He said this week that he would not “shy away” from decisions he had made, but declined to apologise.

Cheap and plentiful credit fuelled the boom in British house prices, pushing them to unsustainable levels in a bubble that burst in late 2007, exacer- bating the subsequent recession.

Global imbalances, low interest rates, flawed regulation and a lack of responsible governance by bank directors contributed to the crisis, Mr Sants said - but he reserved the bulk of his speech for admonishing and urging better behaviour from his audience of pension funds and their managers. Institutions could have done more to hold bank directors to account and engage with them to prevent their flawed strategies, he suggested.

“The responsibility for ensuring effective delivery in this area is primarily for management,” Mr Sants said, “but as investors you should challenge management to ensure their plans are credible.” He said that it was up to shareholders to address the size of bankers' bonuses as well as their flawed structures: “Unlike ourselves, you should be focused on the quantum of remuneration as well as the structure.”

He attacked institutional investors for their unquestioned buying of the complex assets that proved so toxic: “The question I would like to focus on is whether you all knew and understood what you were buying.”

The overreliance on credit-rating agencies and the willingness of fund managers to accept company information without question was also raised. Mr Sants urged them to be more active in taking collective action to bring about better corporate behaviour.

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