'Unacceptable' errors meant City watchdog was 'asleep on the job' allowing collapse of Northern Rock

The Financial Services Authority's own internal review listed basic errors by both junior and senior staff.

As a result, the FSA failed to stop Northern Rock becoming Britain's most devastating casualty of the credit crunch.

Desperate savers queued for hours to withdraw their money.

Scroll down for more...

Tory leader David Cameron said the regulator had "serious failings", while LibDem financial spokesman Vince Cable accused it of being "asleep on the job".

The report examines the regulator's treatment of Northern Rock between January 2005 and the start of the crisis in August 2007. The most alarming mistakes include:

• No senior regulator had a meeting with the bank during that time;

• Until February 2007, the team responsible for regulating Northern Rock were experts in insurance, not banks;

• No proper notes or "formal records" were taken of key meetings between the bank and the FSA; • The regulator's risk assessors were so unconcerned about the Rock they recommended it be moved to the most relaxed timetable of assessments, every 36 months rather than every 24.

Despite the Rock's highly aggressive business plan, just eight meetings were held between the bank and FSA staff during the period, including two by telephone and five on one day.

A typical rival bank would have had nearly 30 FSA meetings over the same period.

Yet FSA chief executive Hector Sants claimed last night that even proper supervision might not have prevented the disaster.

Mr Cable said: "It is welcome that the FSA has had the courage to admit that it failed to adequately regulate the actions of Northern Rock, although the reality is that it had little choice.

"The report shows that they were asleep on the job. But trying to claim that the crisis may have arisen anyway, even if it had dealt with the problem properly, is a total cop-out."

In a heated Commons exchange, Mr Cameron pushed Gordon Brown to admit that the report showed the FSA has "serious failings". He said: "I know you created the regulatory system but you need to be frank about its failings."

In unusually strong language for a regulator, the report acknowledges that its supervision of the bank was "not of sufficient intensity or appropriate rigour to challenge the company's board and executive on their risk management practices and their understanding of the risks posed by their business model."

One of the biggest problems was a rapid turnover of staff at the FSA.

Between January 2005 and August 2007, Northern Rock was the responsibility of three different department heads.

There were "significant demands on their time during the period, including covering gaps arising due to manager turnover".

Mr Sants admitted the performance had been unacceptable but said it was "impossible to judge" whether the crisis could have been averted in any case.

The FSA outlined a number of proposals for improving its effectiveness including hiring an extra 100 people.

It said senior managers will have more contact and "direct supervision" of firms on their beat.

The British Bankers' Association insisted the real blame lay with the bank's management, not the regulator. It said: "No amount of regulation can ensure that wrong decisions are never made."

The union Unite demanded a full investigation. General secretary Graham Goddard said: "It is vital that Government and the FSA can demonstrate that those who contributed to the failure of Northern Rock are held to account."

The bank's former boss, Adam Applegarth, has resigned but has not been penalised in other ways for his key role in masterminding the business plan that lead to its collapse.

He remains a rich man, having enjoyed a seven-figure salary and made more than £1million selling shares in the bank just before its collapse.

About a third of his workers, however, will lose their jobs by 2011, with most getting the axe this year.

At the FSA, five of the seven people mainly responsible for overseeing Northern Rock have resigned.

The most high-profile casualty, Clive Briault, the FSA's managing director of retail business, will leave next month.

John McFall, chairman of the Commons Treasury Select Committee-said: "This is not just a failure of the supervisors at Northern Rock.

"It is a failure of the management of the FSA and a fundamental change is needed in that management.

"People can close their doors at the FSA and walk out of their office and go along to one of the banks and get five or six times their salary."