The Financial Services Authority (FSA) said its supervision of the now-nationalised group "was not carried out to a standard that was acceptable" in a long-awaited internal report into the Northern Rock debacle.

The FSA identified four key failings in its work with the group, including inadequate supervisory resources and a "lack of oversight and review" by FSA line management.

The regulator said there were continuity problems with the managers responsible for the bank's supervision, with three different heads of department in the role during two-and-a-half years.

It also admitted none of the heads of department had met Northern Rock since January 2005, despite managers on average meeting one of the firms under their charge every week.

The FSA is proposing to recruit an extra 100 staff to boost its risk assessment and supervisory capability in light of the review.

Hector Sants, chief executive of the FSA, said: "It is clear from the thorough review carried out by the internal audit team that our supervision of Northern Rock in the period leading up to the market instability of late last summer was not carried out to a standard that is acceptable, although whether that would have affected the outcome in this case is impossible to judge.

"However, I am determined, through the programme of work that I am announcing today, that proper standards will apply to all significant firms supervised by the FSA."

The FSA said Northern Rock was initially supervised by a department whose primary responsibility was for insurance groups.

The bank was only supervised alongside deposit-taking peers from February 2007 during the two-and-a-half years under review.

Northern Rock was also the only firm classed as high impact not to be issued with a so-called "risk mitigation programme".

The FSA said that alongside the recruitment of more staff, it will seek to give greater priority to the task of supervising individual firms, with more involvement of senior management in the process.

A new group of supervisory advisory specialists is set to be created, while the FSA said it will also co-ordinate better with the Bank of England at "working level" and international regulators.

The report said there will also be an increased focus on the competence of firms' senior management, but it stopped short of calling for an inquiry into the conduct of the former directors of Northern Rock.

The Newcastle-based group was nationalised in February and currently owes around £25 billion to the Bank of England after soaring borrowing costs forced it to seek emergency funding.

Northern Rock fuelled its rapid growth by borrowing most of its cash for lending in wholesale money markets rather than relying on deposits, but it imploded when the credit crunch cut off its funding supply.

Its staff are set to pay the price for the crisis at the company. Ron Sandler, the new executive chairman of the nationalised lender, set out plans last week to axe around a third of the company's 6,000 jobs to slim down the business and pay off its vast borrowing.

Disgruntled investors have also seen Northern Rock's value slump to less than a tenth of its £5.3 billion stock market peak a year ago before its shares were suspended.

They have threatened to sue the Government unless it pays fair compensation and have accused it of a breach of human rights.