I approach this subject with some humility.

Economists, academics and politicians have been queuing up to claim that they foresaw the onset of the credit crunch. But in almost all cases, their claims do not bear up to scrutiny. Just about the only claim for foresight that holds water comes from an unexpected source. The Financial Times told us last week that Pope Benedict XVI is credited with identifying the risks of an undisciplined economy earlier than everyone else. The FT's front page banner said "almost everyone - except the Pope - missed the coming financial catastrophe". It is comforting that, where so many authoritative voices seem to have let us down, we can still rely on Papal infallibility.

Let us start with some perspective on financial services regulation. 

In 2002, for the first time in living memory, more companies were floated in London than in New York. London's lead continued until late 2007. This caused much handwringing in Wall Street. So much so that Mayor Bloomberg commissioned a report into how New York could maintain its global financial leadership. The unwritten subtext of the report sought to ask why companies were choosing London not NYC. 

The report, completed by management consultancy McKinsey, concluded that it was because of the regulatory environment in London: more light touch, more proportionate, less fragmented - and with none of the perceived over-reaction of the Sarbanes-Oxley approach to US financial reporting.

The McKinsey report made clear that it saw 'light touch regulation' as a British phenomenon - a product of the consolidated regulatory regime created by the Financial Services and Markets Act 2000, and implemented by the Financial Services Authority. According to McKinsey, the Brits had light touch regulation, the Yanks didn't - and that's why London was thriving.

It goes without saying that the McKinsey report did not predict or warn about the riskiness of modern financial structures. But you could see that report as a high-water-mark for the advocacy of 'light touch regulation'. It is now commonplace for politicians, journalists and others to say "we need to end light touch regulation". We need to be tougher with banks; tougher on bankers; and especially tough on bonuses. Ending light touch regulation has become one of the cliches of the moment. I want to explore this notion that we should end light touch regulation. My argument will be simple: it is wrong to characterise the financial crisis as a product of light touch regulation. And it is therefore wrong to see heavier touch regulation as the solution.

First, a little reflection shows that the lightness of touch or otherwise applied in the regulation of financial services can have had little relevance to the current crisis. The crisis has been a global phenomenon. It has affected countries with widely diverging regimes, from the fragmented, rule-based US system to the integrated Continental European approach. No country has been sheltered from the impact of the credit crunch simply because it has a particular regulatory model in place. It is true that different jurisdictions have had slightly different problems. But the key point is that banks across the world have struggled with liquidity, solvency and capitalisation, regardless of the type of regulation. So it doesn't really make sense to pin the blame on a particularly UK mode of 'light touch regulation'.

Secondly, I don't think that the UK's approach was ever rightly characterised as 'light touch'. The UK financial services industry certainly didn't think so. Trade bodies such as the British Bankers' Association and the Association of British Insurers complained regularly about the intrusiveness of the FSA's approach. And there are figures to back it up. In 2005, the administrative cost of the FSA's regulations were estimated at £600 million. The highest costs were imposed by anti-money laundering regulations and regular reporting rules. That hardly sounds like we were starting from a light touch.

And the FSA certainly didn't think it was light touch either. It spent a lot of time arguing that it wasn't light touch at all - it said it was proportionate; that it sought to be principles-based. 

And, above all, it was risk-based. This indeed was its calling card to the world - it described itself as far back as 2000 as a "new regulator for the new millennium". And the essence of this new regulator was that its approach was based on identifying the riskier institutions and regulating them more closely. It would -in its own high flown technical jargon - have a 'risk appetite'. In plain language, this meant that it would be explicit that it would tolerate some failure of financial firms. And it would enforce by reference to risk - the riskier the activity, the tougher the fine. It even published an annual Financial Risk Outlook to tell the world what the FSA's view of risk was. Risk infused everything it did.

If we cannot be sure that light touch regulation has failed us, because we never really had light touch in the first place, can the same be said for risk-based regulation. This is the sort of question my Committee thrives on. The Public Accounts Committee focuses not on the high policy of Government, but on Government's ability to deliver and implement its ideas. We focus on what works or doesn't in the real world, more than the high theory.

The FSA's position is fairly clear. It favours and wants to keep so- called risk-based regulation, even after the crisis. But it may shift its focus: in its own technical jargon, it might lower its risk appetite.

It doesn't want to chuck the model out. But it definitely wants to implement it better. Lord Turner, the new chairman, has said that the FSA had been doing regulation "on the cheap". He says he needs better staff, and they need to be better paid. So he says he needs more money. I'm no expert in financial services regulation but I am not so sure about this. Perhaps the FSA first needs to focus on its operations. The FSA's own internal review of how it regulated Northern Rock revealed its management failings. Northern Rock, uniquely among major UK banks, was not subject to the scrutiny of a full FSA Risk Mitigation Programme. This was not because of high policy, but because the FSA's supervisory team and risk assessment panel didn't perform a comprehensive analysis of the risk inherent in the business at the time. Weirdly enough there was no requirement to present developed financial analysis to its own risk assessment panel.

If you haven't already, you should read on the FSA's website its Northern Rock review. It sends out a chilling message to the high strategists who talk airily of a shift away from 'light touch regulation': the devil of these is in the detail. By its own admission, the FSA failed on some of the mundane day-to-day basics. 

Doing the right things on a mundane, day-to-day basis. Exactly the sort of observation that is meat and drink to my Committee.

And can I make an important point here? My Committee does not in fact have scrutiny over the Financial Services Authority. This is because the Financial Services and Markets Act set the FSA up in a way that places it beyond direct Parliamentary scrutiny of how it has used its resources. It is not subject to regular audit by the National Audit Office, unlike almost all regulators. And it does not appear before my Committee to answer for the way it has managed its resources. The only other analogous loophole in my Committee's access is the BBC - and we all know what problems they've had recently too.

I want to focus on two further aspects of the financial crisis: the role of Boards, and incentives, within banks; and the macro-economy.

I suggest that the Boards of the banks did not sufficiently understand the nature of the risks the banking system faced. Their overwhelming desire to outperform competitors was the key cause behind the banks making sub-prime mortgages and getting involved in high-risk transactions. Here we enter into the mumbo-jumbo of financial services: Collateralised Debt Obligations; synthetic CDOs; and the rest. It doesn't matter whether we fully understand what these things were; and banks themselves hardly appeared to care. These fancy financial instruments dreamt up by bankers were all basically a conjuring trick, a dressing-up of high-risk debt to make it appear low- risk.

But any fears in the banking sector about this conjuring trick were put to one side. Firms had to increase their profits in line with competitors - otherwise, they would be less attractive to the market and engender hostility to the Board from their own shareholders. 

Qualms were ignored in the headlong rush towards exponential growth. 

To take another example, the Boards of Northern Rock and Bradford and Bingley were delighted with the growth they were achieving - so much so that they didn't stop to consider the sources of the growth:
borrowing from fragile banking wholesale markets.

The Boards obviously pooh-poohed the underlying dangers. The profits were rolling in, so why should they care about the detail?

And bonuses definitely didn't help either. the bonus structure rewarded bankers for generating fees. The size of the bonus took no account of the prudence of the underlying deal. What the crisis has shown is that there is no mechanism for stripping bankers of these rewards for failure.

Secondly, I want to make a passing observation about macroeconomic policy. Regulation is more than a set of rules. It is an attempt to guide and constrain behaviour. And macroeconomic policy acts as one of the major constraints on behaviour, perhaps even more than the rules. The ultimate form of banking regulation is the setting of base rates by the central banks. I think history will conclude that base rates have been too low for too long, possibly because central banks ignored inflation in asset prices such as houses and shares. In teh face of very low interest rates, perhaps no form of micro regulation could have prevented the massive expansion of credit.

So I want to conclude with three observations about the prevailing direction of regulation.

First of all, we need to pay as much attention to the behaviour of Boards as we do to that of regulators. the key to a better regulatory system in the future is to make Boards better understand the risks they are taking with our money - both current risks and new ones as they emerge. Bigger sticks for regulators will be of value only if they hit the right things with them. And what constrains Boards are not just the detailed rules and styles of regulation, but also macroeconomic policy.

In the second place, we need to be wary of driving business offshore. I began by referring to New York's concerns in the early part of the decade about the rise of London. Of course, some of you will remember how, in an earlier era, ill-advised US regulation created the entire Eurodollar market in London - still a thriving part of London as a financial centre.

So we need to be cautious here.

Thirdly, and most importantly, we need to be sceptical about high- falutin' claims of the need to change direction - to shift from light touch to heavy touch. My view is based on my experience in Committee Room 16 every Monday and Wednesday. And I can tell you that we should focus just as much on the implementation of these ideas - and on the skills and capacities of officials charged with taking these ideas and making them a reality. The Public Accounts Committee remains unique in Parliament in its rigorous focus on these questions. We see what others often miss: the devil is in the implementation.

Let me close, though, with a more personal observation.

Let us not forget that thousands of people are losing their jobs. And hundreds of thousands of people have been anxious about the safety of their money: in Northern Rock, in Icesave and in the other banks. We have learnt a lot from this crisis. We have learnt how quickly confidence can evaporate in a modern media age, with 24-hour reporting. We have learnt how consumers mistrust complexity. We've learnt how competition rules can be waived when the public interest is high enough. We have learnt how surprised people have been that their deposits were fully protected only up to £35,000.

This too is an insight from my Committee's work. Because when policies are implemented poorly, it is ordinary people who suffer. So my final plea is that, however we take forward our new regulatory regime, we do not forget the consumers who ought to be the ultimate beneficiaries of any regulation.