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Speaking at the 2008 Labour Party conference held in Manchester last week, the chancellor said he had asked Lord Adair Turner, the new chairman of the FSA, to urgently look at what could be done to improve the system.

He said the government would look to strengthen the supervision of the banking system, making it easier to intervene if a bank got into trouble.

This would include giving new powers to the regulator.

Mr Darling said: "It is not a question of light-touch regulation against heavy-handed regulation. It is about effective regulation.

"I can promise wherever weaknesses are found in the financial system, whether in the powers of government, the Bank of England or the FSA, I will take steps to deal with it."

He also defended the government's decision to change the competition rules to make the merger possible between Lloyds TSB and HBoS, saying it was "a difficult decision. But also the right one".

Mike Lazenby, chief executive of Kent Reliance Building Society, said: "For hundreds of years banks and building societies have been able to manage their own business affairs and it is only because of the intervention of the regulators that we are in the predicament that we are in. "Giving more power to the regulators is not the answer. All that will do is speed up the contraction of the market and the reduced choice for consumers."

John Goodfellow, chief executive of Skipton, said: "After last week it is difficult to argue against greater powers although as Northern Rock showed us the effective use of current powers is just as important.

"I would anticipate more robust analysis of liquidity, capital and arrears with more stress testing. This should all help to stabilise the current position."

George Osborne MP, Conservative shadow chancellor, said "How extraordinary that a chancellor could give a speech in the middle of an economic crisis and provide no plan about how the government is going to handle it."