Mr Bailey, chief executive of the new prudential regulator the Prudential Regulation Authority, said evidence from the FSA’s 15-year reign showed there have been periods when either conduct or prudential supervision has been more in the “ascendancy to the detriment of the other”.
Speaking at the Chartered Banker Dinner in Edinburgh, Mr Bailey in particular singled out what he described as a “dearth of prudential supervision” leading up to the crisis as the focus swung too far over to conduct regulation.
However, he added that there were also periods when the reverse has been true, saying that often there is conflict between the two objectives that a single regulatory body has an “inbuilt tendancy” to “play down”.
He said: “In the years leading up to the start of the crisis there was a dearth of prudential supervision, but I am quite prepared to acknowledge that there have been periods where the opposite has been true.
“My point here is that I don’t think the system of integrated regulation demonstrated the ability to deliver a stable equilibrium of conduct and prudential supervision.”
He added: “There are several important reasons why reform of financial regulation will in my view be an important step forward. It starts with establishing very clear public policy objectives for financial regulation to which we, as the regulators, are fully committed.”