J.M. Keynes lamented to the Bank of England that it was “attacking the problems of the changed postwar world with ... unmodified prewar views and ideas”. That was in 1930. Yesterday the Bank demonstrated that it was not wedded to old ways. Its Monetary Policy Committee cut interest rates by a further half point to 0.5 per cent, and adopted for the first time a policy of “quantitative easing”. This means that the Bank will expand the money supply, by £75 billion. It will do this by buying assets such as government and corporate bonds. In increasing the amount of money in circulation, the Bank hopes to revive bank lending and boost the economy.

The Bank's policy is justified and urgent. Inflation is decelerating. There is a risk that the economy might be caught in a spiral of sustained falls in prices (deflation), as happened in Japan in the 1990s. That would be disastrous. Consumers would defer purchases in the expectation of further price falls. Growth, employment and investment would collapse. The Bank is running the risk of a future jump in inflation in order to forestall a return to Depression-era economics.

But while the policy is right for the circumstances, it is an outcome of policy failure. Inflation targeting was introduced in 1992 with the aim of enhancing economic stability and making policy decisions more transparent. When Labour took office in 1997, Gordon Brown took that policy farther by making the Bank responsible for setting interest rates. Mr Brown also split responsibility for monetary policy from banking supervision, which he vested in the the new Financial Services Authority (FSA).

In his press conference with President Obama this week Mr Brown declared: “When we made changes in 1997, we made changes for the times of 1997.” It was not obvious, when he cast a new financial architecture, that Mr Brown envisaged for it so imminent a sell-by date. His statement betrays complacency to the point of disingenuity. The tripartite system of financial responsibility - divided among the Treasury, the Bank and the FSA - is of his own devising. The crisis was, as Mr Brown is eager to point out, born in the US housing market. But it is not only the greatest global financial catastrophe since the 1930s: it is also a comprehensive failure of policy, regulation and institutions in the UK.

The derelictions start with these. Monetary policy failed. The Bank's mandate of targeting inflation proved too narrow. It focused on consumer prices but overlooked asset prices. Cheap imports from China helped to dampen inflationary pressures and let the Bank keep interest rates low. But a massive bubble in house prices, fuelled by imprudent lending, was left unconstrained. The Bank was so consumed with its monetary responsibilities that it failed in its task of securing financial stability.

Supervision was inadequate. The FSA supervised individual banks while lacking necessary expertise. It did not understand the systemic risk posed by complex financial products. It presided over the first collapse of a UK bank in a century. It failed to detect the dangers of a business model (Northern Rock's) of borrowing short term in the wholesale market and lending the money out as mortgage finance.

The Treasury's interventions, since the credit crunch turned to financial panic in the autumn, have in some cases worsened the damage. Its waiving of competition rules to allow the merger of Lloyds TSB and HBOS saved a vulnerable institution but severely weakened a sound one, at an enormous cost in pounds and principles.

The British financial system is dysfunctional and has damaged the wider economy. Mr Brown is its author. It might hasten necessary repairs if he were to acknowledge those errors.