Finance boss bids for job as UK’s bank manager

In his Mansion House speech, his last at the helm of the City watchdog, Lord Turner said the country needed “a sounder banking system for the future” and should be prepared to turn to more innovative measures to tackle economic challenges.

Lord Turner is one of the frontrunners to succeed Sir Mervyn King as Bank Governor, going up against the likes of deputy governor Paul Tucker for the role.

Choosing the next governor is viewed as the most important decision Mr Osborne and Prime Minister David Cameron will make before the next general election.

The deadline for applications passed on Monday after the position was publicly advertised by the Treasury for the first time in the Bank’s 318-year history.

Lord Turner said the first eight years of the FSA’s existence seemed “plain sailing” but added “that was a delusion, the vulnerabilities relentlessly growing, but we didn’t spot them”.

He said the financial crisis was created by excessive borrowing, light regulation and over-complex financial innovation, as well as the inherent flaws of the “eurozone project”.

He went on: “We need to build a sounder banking system for the future, and many of the reforms needed to achieve that are already in hand. But we also need to ensure the stability we build is not the stability of the graveyard.”

His comments directly echoed those made by Chancellor George Osborne last year when he rejected calls for tighter bank legislation to be introduced more quickly, warning the UK does “not want the financial stability of a graveyard”.

The Chancellor, who was answering questions from Lords and MPs on the new Finance Bill, said the legislation was designed to get the “right balance between stability and growth”.

Lord Turner said new structures – which will replace the FSA – were well designed, but added “we will need to use them well and to be open to further policy innovations if we are to overcome the deflationary headwinds we face”.

The former CBI director-general also praised financial services which had “played no role in the origins of the financial crisis”.