Oct. 15 (Bloomberg) -- The head of Britain's financial regulator issued his first public apology for not doing enough to prevent the worst financial crisis since the Great Depression.

Hector Sants, the Financial Services Authority's chief executive officer, said the regulator overlooked business models of banks that relied too much on funding from money markets. His comments go beyond a speech yesterday in which he expressed ``regret'' about the agency's handling of the credit crisis.

``We're sorry that our supervision didn't achieve all it should have done,'' Sants said today in a speech to business leaders and financial services employees in Edinburgh, Scotland.

The government has set aside as much as 50 billion pounds for equity stakes in the banks, and has also provided 250 billion in inter-bank loan guarantees and 200 billion in a special liquidity program. The cash injection into Britain's banks by the U.K. government this week is the biggest stake it has taken in the private sector since the nationalization wave by a socialist government after World War II.

The FSA has previously admitted making mistakes in relation to its supervision of Northern Rock Plc, the first U.K. casualty of the global credit crunch. The regulator in an internal review said that Northern Rock was an ``outlier'' in terms of how banks are regulated by the FSA.

``With subsequent events, like Bradford & Bingley, like HBOS, like RBS, we can draw from them the same lessons as Northern Rock, they're not different lessons,'' Sants said today. ``We should have been putting pressure on the directors to make sure they understood their business model.''

`Humility'

Bradford & Bingley Plc last month became the second U.K. bank to be nationalized after Northern Rock. Lloyds TSB Group Plc will acquire HBOS PLC in a government-backed takeover.

``Some humility on behalf of all of us in the financial services sector, and on behalf of our regulator, is appropriate,'' Owen Kelly, the CEO of Scottish Financial Enterprise, whose members are drawn from across financial services, said in an interview.

Joseph Eyre, a spokesman for the FSA, said ``It is absurd to suggest that this is the first time that Hector Sants or the FSA has apologised for our failings of supervision over Northern Rock and the ensuing crisis.''

Biggest Banks

Two of Scotland's biggest banks, the Royal Bank of Scotland Group Plc and HBOS's Bank of Scotland, will be partly nationalized as part of an unprecedented government bailout to stem the banking crisis. The two, with Lloyds TSB, will receive 37 billion pounds of taxpayer money in return for equity stakes.

``It's a difficult environment, coming up to Scotland while storm clouds are gathering,'' said Graham Birse, deputy CEO of the Edinburgh Chamber of Commerce. ``At least Hector had the grace to explain the FSA perspective and some of the lessons that can be learned.''

Sants said that the FSA believed that after the government investment, RBS, HBOS and Lloyds TSB would have a ``satisfactory'' level of Tier 1 Capital, a key ratio of a bank's strength mainly made up of equity in relation to overall assets.

The government investment is designed to increase Tier 1 capital to above 9 percent.

To contact the reporters on this story: Caroline Binham in Edinburgh at cbinham@bloomberg.net.

Last Updated: October 15, 2008 15:35 EDT