Julian Knight: The banks were never going to listen to Cassandra

Paul Moore, like the ancient Cassandra, was always doomed to be ignored. HBOS was caught in the same mad mindset as almost every other major corporate player in banking and beyond.

For the big investors, profit growth of 5 or 10 per cent a year is nowhere; it must be 20 or 30. So if Mr Moore's warnings on risk management at HBOS had been heeded, what would have happened? The institutional investors – perhaps prompted by the then "success" of Northern Rock – would have soon agitated against it or a takeover (funded by easily available debt) would have been launched.

At the same time as Mr Moore was penning his warning, Nationwide building society, a mutual, had made its own assessment of the credit bubble and was gently moving out of the massively overheated buy-to-let sector – the market that eventually did for Bradford & Bingley. Nationwide will wish it had acted quicker than it did, but still the episode highlights a crucial difference between the mutual and shareholder models.

The truth is that the failures of the banks is all about the way in which nearly all big western companies are run: non-executive directors who spread themselves too thinly between boards, which are in turn nothing more than gentlemen's back-scratching clubs; and a City of London dangerously short-term in outlook, populated by people whose raison d'être is the highly leveraged corporate takeover and screw everything else.

Open warfare at the FSA

Off the back of the resignation of Moore's old boss, Sir James Crosby, as deputy chairman of the Financial Services Authority, warfare is breaking out in the corridors of the City regulator. Adam Phillips, acting chairman of the Financial Services consumer panel, which was set up to advise the FSA board on how to improve the treatment of bank and insurance customers, issued a press release on Thursday calling for changes at the top of the regulator. Mr Phillips said the FSA needs people who "identify with the consumers that regulation is there to protect" – ergo fewer bankers. I couldn't agree more.

A quick scan of the FSA top brass reveals a heavy bias to the "masters of the universe". In the wake of the Northern Rock affair, and fearing that the regulator didn't have the skills to monitor bank balance sheets adequately, the FSA chief, Lord Turner, promised an upping of these skill levels – hence more bankers. But the world has moved on since then and anger is mounting by the day. A radical overhaul and new appointments at the top of the regulator are musts.

We don't want unqualified people or, heaven forbid, hacks running things, of course, but we do need a few seats at the top table for those who work with and advise consumers – who see first-hand the damage that has been wrought by the greedy banks.

The FSA prides itself on "light touch" regulation, and this suited the bankers inside and outside the regulator during the splurge of the recent past. They hid behind the FSA's constitution that states it should promote financial services and the City. However, the credit crunch is not an aberration before the restoration of business as usual; it represents a fundamental regulatory and systemic failure. And although I am an old-school techno-clot, I do know that when you get one of them, it's time to reboot.