FINANCIAL Services Authority chairman Lord Turner declared last week that it was time to stop demonising overpaid bankers and focus instead on the failure of regulatory policies to prevent the financial crisis.

Lord Turner said he stuck by his past criticism of “exotic” financial services products, such as collateralised debt obligations which lay at the root of the credit crunch.

But he added: “We also need to move beyond the demonisation of overpaid traders to recognise, that in finance and economics, ill-designed policy is a more powerful force for harm than individual greed or error, and to ensure that we address the fundamentals of what went wrong.”

Lord Turner’s emphasis in addressing these “fundamentals” is worrying. For all that the financial crisis involved a near-catastrophic failure of regulation, it is not in the interests of achieving well-judged reform of the system for policy-makers to put on a hair shirt and accept the principal blame.

Ill-designed regulatory policies certainly allowed the crisis to happen but it was greed and error, individual and corporate, within the banking sector which brought it about.

If this is overlooked there is a risk that the regulatory failure of the recent past will be repeated, with reform focussing on an increased level of supervision rather than on the kind of structural reform which is needed both to bring about a change in culture within banking and to protect the taxpayer should the sector continue in its old habits.

Bank of England governor Mervyn King has called consistently for exactly this kind of structural reform, and he is right.

If “casino style” investment banking operations are split-off, or in some way ring-fenced, from conventional deposit-based banking, then the banks can go on paying out hefty bonuses for as long as their luck holds, although the absence of a Government-funded safety-net is likely to have a restraining influence.

If it does not, and they run out of luck once more, it will be the individuals responsible, and ultimately their shareholders, who will carry the can, not the taxpayer.

Demonising investment bankers will not help prevent another crisis, but neither will more intrusive regulation in the absence of structural reform of the sector itself.