Regulatory efforts to make it easier to wind down systemically important financial institutions, or Sifis, and impose losses on their bondholders are positive, Lord Turner said. But both would likely prove insufficient in a crisis because of the risk of “knock-on systemic disruption”, the FSA chairman said at a speech at Cass Business School.

“We need to reduce the probability and impact of Sifi failures. The best way to do that is with equity surcharges,” he said.

The Basel III rules adopted late last year require all banks to hold top-quality tier one, or core capital, equal to 7 per cent of their assets, adjusted for risk, but Lord Turner said that was inadequate to protect the system.

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