Banks facing 'heavier' regulation

Lord Adair Turner took over as chairman of the FSA in September

The head of the Financial Services Authority has warned the City that the era of light-touch regulation is over.

Lord Adair Turner told the Guardian the FSA had tried to regulate big banks "on the cheap" and would recruit top City experts to change that.

But he told the newspaper that while the approach would be "heavier", it would also be "intelligent and focused on where the risks really are".

He also said there would be a global recession, but not a major depression.

"There is no chance of a 1929-33 depression. We know the lessons and we know how to stop it happening again," Lord Turner said.

But he said the Treasury's multi-billion bail-out plan for British banks would take time to have an effect.

'Poachers'

The FSA chairman said his body would soon have "more people asking more questions" about the way the financial sector was being run.

And he said the watchdog would have more room to do this because the current crisis had debunked the myth that hands-off regulation was key to competitiveness.

Poachers turned gamekeepers are very attractive to hire Lord Adair Turner, FSA chairman

While the FSA "shouldn't regulate for its own sake", he said, "there is no doubt the touch will be heavier."

Critics say the FSA cannot recruit the best people to enforce regulation because City firms themselves can always pay more.

But Lord Turner said that would now change: "We will pay more than necessary to attract the correct quality of people from outside.

"Poachers turned gamekeepers are very attractive to hire."

Lord Turner took over as chairman in September after a year in which the FSA was heavily criticised for its role in the collapse of Northern Rock.

Earlier this week, the authority said it was concerned that "inappropriate" pay deals at banks may have caused the current crisis.