The Financial Services Authority (FSA) allowed British building societies to be "eaten alive" by "cynical" investment bankers, according to a whistleblower.
According to a former FSA supervisor, the body failed to prevent mutuals from buying up risky loans due to its policy of not regulating business models.
In an interview with the Financial Times, the unnamed ex-employee, said: "I witnessed trusting and naive provincial building society executives and non-executives, who had no real understanding of securitisation or structured finance being eaten alive by cynical, rapacious and short-termist investment bankers."
These loans, which were seemingly safe at the time, are now viewed as toxic and could spark further state-backed bailouts of the kind seen at Dunfermline Building Society, he warned.
Initially, the whistleblower made his concerns known in a letter to Lib Dem treasury spokesman Vince Cable.
The FSA has already stated it is committed to changing the way it supervises financial institutions.
