Professor David Hillier, of Leeds University Business School, said the failure of ordinary and institutional shareholders to hold lenders to account for their their high-risk approach had helped pave the way for turmoil at Bradford & Bingley, Halifax Bank of Scotland and the fully nationalised Northern Rock.

The danger signs could be spotted five years ago, added Prof Hillier, Centenary Professor and Ziff Chair in Financial Markets and head of the business school's accounting and finance division, when banks and building societies made vast profits while highly leveraged – for example, the Rock's now-infamous loans which covered 120 per cent of the value of a home, and self-certified mortgages.

"Shareholders have a burden of responsibility as well as the regulators and the Government, which was happy to take in the tax revenues.

"The media have been looking for a scapegoat but we all have a part to play. Consumers who took 120 per cent mortgages or people who took out self-certified loans. You could say it was irresponsible."

Prof Hillier highlighted the Greenbury Report on executive pay, published in 1995, which recommended performance-related pay and the offering of share options to board members. He said this contributed to lenders' pursuit of high-return policies which rewarded their executives.

"Linking executive pay had a huge impact on the banking sector encouraging banks to undertake complex risk management and wrecking the fine balance which matched deposits against loan portfolios. It also encouraged stable mutual financial institutions like Halifax Building Society, Northern Rock and Bradford & Bingley to float on the stock market."

Prof Hillier said the Government has still not done enough to curb a culture of excessive risk among lenders and said shareholders could play a role in doing this. "We need to look at risk management and corporate governance in a different way – more interaction with the major shareholders."

Prof Hillier said that more regulation was needed than just the Basel II rule, which limits the amount of money a lender can hand out in relation to its core Tier 1 capital ratio – although Northern Rock was granted a waiver, allowing it to accumulate a book of toxic home loans – because mismanagement could include "much more than that".

He also advocated a return to the days of a strong relationship between bank customers and branch managers. He said this would help restore an element of trust to the financial system.

A WORLDWIDE KNOWLEDGE

Prof David Hillier, pictured, who is on the editorial board of several academic journals has worked as a World Bank consultant when he advised the Bank of Tanzania on the use locally of financial derivatives in the banking sector in March 2004.

Last year he was employed as a consultant for NHS Connecting for Health to advise on its internal corporate governance structures. He has also written on corporate governance, insider trading, asset pricing and precious metals and has taught in Greece, Malaysia, Holland Netherlands, Spain, Tanzania and Thailand.