Lord Adair Turner, the recently installed chairman of the Financial Services Authority, has warned that Britain’s banks face a hard-line regime of supervision after admitting that the regulator had been guilty of supervising them "on the cheap".

In an interview, he emphasised that, in the wake of the credit crunch and global bailout of financial institutions, the days of light-touch regulation were over.

"There will be more people asking more questions and getting more information than we were getting before," he told The Guardian. "There is no doubt the touch will be heavier. We have to make sure it is intelligent and focused on where the risks really are."

Lord Turner said that 18 months ago, any attempt made by the FSA to ask banks to raise their capital bases would have been met by criticism and accusations of over-regulation.

He said: "If a year and a half ago, the FSA had wanted higher capital adequacy, more information on liquidity, had said it was worried about the business models at Bradford & Bingley and Northern Rock, and had wanted to ask questions about remuneration, the fact is that we would have been strongly criticised for harming the competitiveness of the City of London, red tape, and over regulation.

As markets across Europe fell again on Thursday, Lord Turner predicted it would take time for the UK’s bailout to have an impact. In London, the FTSE 100 index of Britain’s leading companies sank by another 5.35 per cent, or 218 points, on the heels of its 7.2 per cent slump on Wednesday.

The FTSE has now seen more than two-fifths of its value wiped out over the past 12 months.

However, the FSA chairman added that there was no chance of Britain slumping into a Depression in the same scale of that in 1929-33.

Lord Turner said the FSA would have to recruit more staff and be prepared to pay higher salaries than in the past.

He told The Financial Times: "We will pay more than necessary to attract the correct quality of people from outside.

"Poachers turned gamekeepers are very attractive to hire. The FSA, in relation to systemically important firms, was trying to do regulation on the cheap," he said.

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