Rothschild blasts City for a ‘lack of ethics'

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He said credit rating agencies were "too cosy" with banks they were supposed to assess, while banks did not understand the products they were creating and selling.

Warning that the crisis would get worse before it gets better the 77-year-old, who ran NM Rothschild for 20 years, said: "We should not be under any illusion in this country that subprime is only an American problem."

He said the banking community, including regulators, had ignored the explosion in the UK subprime mortgage market with reckless lending by the likes of Northern Rock.

Investors should have acted to control bankers' pay and management's risk-taking, he said. "What are shareholders for? I think shareholders have not been speaking up."

He added: "You can also look to the accountants. It is their job to dig deep into the accounts and assess the risks a bank is taking.

"I mean, some of these American banks were 20 to 30 times leveraged — that is something I have never heard of."

He said the only way out of the crisis was to boost regulation and licence all those working in financial services.