A system of remuneration for UK bankers offered a "reward for gamblers", the governor of the Bank of England has told a committee of MPs.
Mervyn King criticised the system that was in place during the boom years.
And he said RBS former chief executive Fred Goodwin would have to think about his position on his pension agreement which has caused controversy.
Mr King added that many months were needed to assess the state of the toxic assets held by UK banks.
He told the Treasury Committee that a "contract-by-contract" assessment was needed to find out what was on banks' balance sheets.
Mr King refused to be drawn on the specific pension agreement that RBS had with its former chief executive, but he said the remuneration system needed to be changed.
There is a good deal to be said for downplaying the role of credit ratings
Mervyn King, Bank of England governor
"I'm not going to jump on the bandwagon of the rather unappealing sort of vengeance, to be honest. He will have to think about his position," he said.
"I think future compensation packages will look very different. The real question about [RBS former chief executive Fred] Goodwin's pension is how on earth was it that the board, shareholders and financial press all thought it was a good idea in the first place.
"You cannot blame one individual for the failings of a system."
He said the system during the boom years offered "incentives to gamble", but did not leave them with any loss if things went wrong. He described the bonuses as "absolutely astronomic".
"The executives at the very top have earned vast amounts of money beyond the dreams of ordinary people for doing a job which is very hard to say justifies that kind of bonus," he said.
But he warned that people should not expect too much from regulators as risk was very hard to assess. They would have been accused of "arguing against success" if they had argued against risk-taking before 2007.
He said the answer was not to have more regulatory committees but for a strong independent voice to speak out.
He did, however, suggested a change to the influence of credit ratings.
"In the Bank we're going to think very hard about to the extent to which we and other central banks rely on credit ratings as an indicator of access to our operations," he said.
"There is a good deal to be said for downplaying the role of credit ratings in its entirety."
The problem, he said, was how to rate the raters, but he did not want to see the ratings agencies to be government-owned.
There was a common theme of too much debt among the banks, he said. On a more general note, he said that the downturn could only be reversed with a worldwide effort.
"This is a worldwide downturn and it is absolutely vital that every country around the world plays its part in dealing with it. This is a worldwide downturn which hit with extraordinary ferocity last October," he said.
Mr King said that the downturn would not last forever and, although it would be painful, some valuable lessons would be learned as a result.
But he dismissed as "wild exaggeration" any suggestion that the UK would have to be taken into administration because of the level of liabilities it had taken on from the banks.
The Treasury select committee is conducting a inquiry into the banking crisis and chairman John McFall said a report could be published within a month.
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