City watchdog in tougher stance vow

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In an interview with the Guardian, Lord Adair Turner, chairman of the Financial Services Authority (FSA), said the body had probably been "over-deferential" to the rhetoric of "over-regulation and red tape".

As such it would now be asking more questions over the financial health of banks and other institutions in a bid to prevent further collapses in the sector.

Lord Turner took over as chairman of the FSA in September. It followed a turbulent year in which the regulator faced criticism over its role in allowing Northern Rock to collapse.

The plight of Bradford & Bingley, RBS and other banks has also put focus on how the UK should regulate the financial services sector.

In the years before the Northern Rock crisis, the FSA faced pressure - from both the business world and parts of Westminster - to move towards a "hands off" approach to regulation.

But in the wake of the fall-out from the credit crisis, the new man at the top has implied that the regulator would be toughening its stance.

He told the Guardian that the days of trying to regulate Britain's big banks "on the cheap" were over.

Lord Turner said: "There is no doubt the touch will be heavier. We have to make sure it is intelligent and focused on where the risks really are."

He added: "We shouldn't regulate for its own sake, but over-regulation and red tape has been used as a polemical bludgeon. We have probably been over-deferential to that rhetoric."