The Financial Services Authority was unable to intervene in the deal between Royal Bank of Scotland and Dutch bank ABN Amro, according to Hector Sants.

Speaking at the Treasury Committee on 30 January, Mr Sants, chief executive of the FSA, said: “There was no regulatory basis for an intervention after the offer document was published.

“You are asking whether the bank met threshold conditions and will it imminently fail? We could not have concluded it would fail.”

The only way the FSA could have intervened would have been if it had done an assessment of risk on the deal before the offer document was published.

He said: “RBS told us it was meeting its regulatory capital at the time of the deal, going to meet its regulatory capital immediately after the deal closed, it was funding itself in the marketplace, it had succeeding in finding funding for its cash offer, a regulator could not have warranted an intervention.

“If a regulator had intervened at that point, people would have said “you can’t do that, it’s totally irresponsible and not linked to the powers that you have.”

This lack of intervention came despite RBS being put on a capital watchlist by the FSA at the end of 2007.

Mr Sants said he hoped the Prudential Regulatory Authority would have the power to assess if there is a reasonable risk and prevent a similar deal going ahead.

Mr Sants is set to become chief executive of the PRA and deputy governor of the Bank of England.

• Want to receive a free weekly summary of the best news stories from our website? Just go to home page and submit your name and email address. If you are already logged in you will need to log out to see the e-newsletter sign up. You can then log in again.