Lord Turner, the outgoing chairman of the Financial Services Authority, has declared that the amount of capital banks were required to hold before the 2008 financial crisis had been a "50-year giant mistake".
He told the Banking Standards Commission that banks could be required to hold more capital against their residential mortgage books in future.
But Lord Turner, who retires when the FSA ceases to exist at the end of next month, also suggested new banks set up in the UK in the future could be encouraged by setting their capital ratio requirements at half the level of existing ones.
He also admitted that regulators needed more help from whistleblowers, particularly in investment banks, where the "computer-trading mentality" and profit-driven culture allowed the Libor rigging scandal.
Referring to the FSA's own report into the rate-fixing affair, Lord Turner said: "There was no information on the trader manipulation. I'm simply saying it has made me think how would you do that where something is difficult to spot … In a sense, is whistleblowing one of the few mechanisms that would have worked?"
Neither the FSA, the US Commodity Futures Trading Commission – two of the regulators that have fined Barclays, Royal Bank of Scotland and UBS – or other regulators had ways to see the trader manipulation, Lord Turner said.
"We could not have got at it by intensive supervision. You just cannot have a police force big enough to spot all these problems."
Meanwhile, Martin Wheatley, who will head the new Financial Conduct Authority, said he was surprised by the former Lloyds Banking Group chief executive Eric Daniels comments when he said its payment protection insurance sales practices put it "on the side of the angels" and likened banks to supermarkets by selling products as loss leaders.
"I was quite aghast. They are not selling a piece of broccoli that goes off after a few days," Mr Wheatley said.