Lord Levene of Portsoken, the chairman of the Lloyd’s of London insurance market, has launched a fierce attack on Lord Turner of Ecchins-well, his counterpart at the Financial Services Authority (FSA), for branding banks “socially useless” and saying that the Square Mile needs cutting down to size.

Lord Levene, one of the City’s most respected commentators and a former Lord Mayor of London, also criticised the chairman of the regulator for arguing that preserving the competitiveness of the UK’s financial sector need not be a main priority.

“This is dangerous talk,” Lord Levene said last night at the Lloyd’s of London annual dinner. “Maintaining the competitiveness of the City, and of UK financial services, in the years to come must be central to our ambitions and therefore central to the current debate about how best to rewrite the rulebook.”

While some banks had behaved “irresponsibly” and rules to curb excessive risk-taking were needed, Lord Levene said: “It is certainly not a reason for politicians and policymakers to start undermining the UK financial sector, which is one of this country’s great national assets. There is a very real danger that we shall end up doing irreparable damage to one of the strongest sectors of our economy.

“Can you imagine the French, German or Swiss Governments questioning the importance of the competitiveness of their wine, automotive and pharmaceutical industries? No. And neither can I.”

Although he did not name Lord Turner, Lord Levene’s comments mark a clear attack on the FSA chairman, who caused anger in the City with comments in Prospect magazine last month. Lord Turner, who is playing a central role in a regulatory crackdown on risk-taking and bonuses in the wake of the financial crisis, said the City had grown too big and some banking activities were “socially useless”. He floated the idea of levying heavy taxes on banks to curb their activities.