The City regulator said today it was a different organisation to the one that failed to rein in Royal Bank of Scotland prior to its rescue.
The Financial Services Authority (FSA) admitted to its own part in RBS's downfall that led to a bail-out by the taxpayer, saying that its approach was flawed and it provided "insufficient challenge" to the bank.
It had been too focused on policing the behaviour of traders rather than supervising the overall direction banks were taking or looking at whether they were taking on too much risk, it added in today's report.
But the FSA claimed it is "a different organisation now" because it now has more resources, better skills and far greater focus on capital, liquidity and asset quality.
Its powers of supervision should be further strengthened under plans to split the regulator in two to create the Prudential Regulation Authority (PRA) to monitor the strength of the banks and the Financial Conduct Authority (FCA) to look at legal issues.
The report admitted that the regulator did not devote enough resources to examining big banks or investment banking but said its previous approach "reflected widely held, but mistaken assumptions about the stability of financial systems".
It blamed political pressure for the "light touch" regulatory regime, which had flourished under the stewardship of Gordon Brown as chancellor.
The FSA had faced "frequent political demands" to avoid imposing "unnecessary" burdens which could undermine the competitiveness of the City, it added.
The report cited a press release from the 2005 launch of Better Regulation Action Plan in which Mr Brown said: "The new model we propose is quite different. In a risk-based approach there is no inspection without justification, no form filling without justification, and no information requirements without justification."
The FSA added that its supervision team was "largely doing what was expected of it" but was "following a deficient supervisory approach" in the run-up to the bank's failure.