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The City watchdog today warned financial institutions to expect "intensive supervision", as it published a report intended to fundamentally alter the way banks are regulated.
Lord Turner, chairman of the Financial Services Authority, outlined a series of recommendations designed to prevent another failure of the financial system.
As part of his investigation, Lord Turner suggested that banks need larger amounts of capital in order to support unstable trading activity.
And he proposed forcing financial institutions to follow a new code of conduct on pay, by incorporating the guidelines into the FSA rulebook.
The FSA chairman also called for tighter regulation of liquidity and of credit rating agencies.
But Lord Turner warned that moves to end excessive risk-taking needed to be taken on an international front as well, and called for remuneration policies to reflect the global market.
He suggested that risk-taking to increase profits had "subsequently proved harmful" to individual institutions, and in some cases "to the entire system".
And he committed the FSA's support to the establishment of a European regulatory authority to monitor cross-border financial activity.
Up to now, he warned, there had been "a failure to design regulatory tools to respond to systematic risks".
He suggested that the crisis could be blamed on "macro-economic imbalances", "financial innovation of little social value" and deficiencies in banking capital and liquidity.
But Lord Turner also claimed that these causes had been made worse by a belief that the markets would be self-correcting.
Lord Turner had been asked by chancellor Alistair Darling to review events that led to the financial crisis.
The peer explained: "Much financial innovation has proved of little value, and market discipline of individual bank strategies has often proved ineffective.
"A global market economy remains the best means of delivering global prosperity: it requires a global banking system focused on serving the needs of businesses and households, not in taking risks for quick return.
"Major changes in regulation and in supervisory approach are required to deliver that."
He added: "The changes recommended are profound, and the banking system of the future will be different from that of the last decade. The world’s economy will be better served as a result."
Dods Parliamentary Communications Ltd