Bring back the man in the bowler hat, I found myself thinking this week. Let's kick those grasping MBAs out of the high street banks and get back to prudence!

The problem is, I then remembered old-style bank managers shutting shop at 3.30, and looking down on anyone entrepreneurial, unless they were posh. Captain Mainwaring was small-minded and officious. We need more bowler hats. But in Whitehall, not the high street.

This week's events have revealed, in glorious Technicolor, the staggering incompetence of Britain's financial regulators. First, Iceland. Who lured mums into going with their life savings to Reykjavik? Best-buy tables, for sure. But also the Financial Services Compensation Scheme which, until last week, stated prominently on its website that Icelandic banks were regulated by the Financial Services Authority (FSA) and that all British money in Iceland was “protected”. It did not say by whom.

Kent County Council, which had £50 million of public money in Iceland, says that the Government told it to seek out the highest returns, and that it was egged on by credit rating agencies and its own “professional advisers” (who no doubt drive tax-funded Ferraris). Presumably the same advisers whose views are routinely sought by pension fund trustees who, like council treasurers, seek to outsource blame at our expense. “Professional” is surely the wrong word - unless, perhaps, you add “negligence”.

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Giving Icelandic banks a UK licence was like letting the Bank of Zimbabwe set up in Oxford Street. This was a country whose bank deposits were twice its entire GDP. The Chancellor's promise to bring savers in from the Icelandic cold is a clear admission of FSA culpability.

Tuesday's spectacular rescue plan brought further insights. The Government deftly shored up the banks, with minimum collateral damage to taxpayers and shareholders. This was a brilliant coup, staged by the Treasury against its own regulatory bodies, the FSA and the Bank of England. Alistair Darling was always going to have to dig feckless banks out of a hole; but these two institutions had managed to make the hole much bigger than it should have been.

The rescue plan tackles the shortage of capital and of liquidity. Mr Darling has recognised the urgent need for banks to recapitalise, particularly RBS, HBOS and Barclays. So he is forcing them to raise capital ratios and to restrict dividend payments to shareholders. Quite right. But could these be the same banks that ran their capital down to dangerously low levels, below that of any American bank, without a murmur from the FSA? Could the RBS that almost collapsed this week be the same one that the FSA allowed to buy the biggest bank in the Netherlands, ABN Amro, only weeks after Northern Rock had gone bust?

Could the Barclays that will now go cap in hand for rescue funds be the same Barclays that was allowed to buy part of Lehmans three weeks ago? When Santander bought Alliance & Leicester in July, Spanish regulators forced it to raise an equivalent amount of capital. No such logic seems to have prevailed in Britain. This year the FSA stood by while banks paid out big dividends that weakened their balance sheets still further. This was after years of allowing banks to pretend that they were healthier than they were, because they kept so much off the balance sheet. This was not “light-touch” regulation, it was light-headed.

The FSA became an arm of the Revenue, obsessed with money laundering and fining people for not filling in forms, while a crisis of historic proportions was brewing. Its former chairman, Callum McCarthy, even got a knighthood for it.

The second element of Tuesday's rescue plan was a £200 billion lending facility to unfreeze the credit markets, which will not need any of the collateral normally required by the Bank of England. Such drastic action is necessary partly because the Bank has been more grudging than any other central bank about making emergency loans. In September, when bank shares plummeted and credit markets were paralysed, the Bank insisted that it would close its special liquidity scheme in October - thus fanning the panic when its duty was to do the exact opposite.

Part of the problem has been the hollowing out of these institutions. They have been contemptuous of the banking industry, and not interested enough in the detail. They completely missed the big picture.

It is no surprise, then, that Tuesday's daring rescue was put together on the advice of people who have a deep understanding of the financial markets. David Mayhew, of Cazenove, Adair Turner, formerly of Merrill Lynch, and Jennifer Moses, whom Gordon Brown drafted in from Goldman Sachs this year, all know the lingo. They know whom to call for advice. They know that policy has to move at the same speed as the markets, not wait for meetings scheduled weeks in advance. Lord Turner of Ecchinswell is a shrewd appointment as FSA chairman.

Much has been written in recent weeks about the need for new regulation. We might start by enforcing the existing rules properly. It is not just banks that need a bonfire of vanities after their mismanagement took us all to the brink. It is also the people who were paid by the State to protect our interests, who failed so lamentably.

Are you a financier newly out of work, a stickler but not a nit-picker? Apply within - whatever you wear on your head - as long as you can work past 3.30.

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