Financial system is on the mend, says FSA leader

The world's financial system "is no longer fragile", the UK's chief City watchdog claimed last night.

Lord Turner, the chairman of the Financial Services Authority, said: "The banking system is stable. House prices have fallen much less than [was] anticipated. The big, emerging economies have proved more robust than we feared. The Bank of England mid-point forecast suggests fairly robust UK growth over the next three years. I say that with some trepidation because, of course, there may be setbacks and unexpected events. But it is important to recognise the positives: a bias to over-cautious pessimism in official statements can be as harmful as a bias to unjustified optimism."

However, in a speech to business leaders at the Mansion House in London, the peer said that even if this was the case and the paths of growth, unemployment and house prices turned out to be better than expected, "we cannot go back to business as usual and accept that a similar crisis occurs again in 10 or 20 years time".

Britain needed "radical change" from financial regulators, he added, saying: "Parts of the financial services industries need to reflect deeply on their role in the economy, and to recommit to a focus on their essential social and economic functions." Lord Turner said he would not apologise for his interview with Prospect magazine, in which he called for a tax on banks that paid excessive bonuses. One banker had, he revealed, told him he was "appalled, disgusted and ashamed" at his words. "I wonder whether this thoughtful soul realises those sentiments are precisely what some of the victims of this recession feel about the excesses of some specific parts of the financial system," Lord Turner said.