The chief executive of the Financial Services Authority has said he did not have the power to stop the Royal Bank of Scotland's ill-fated takeover of Dutch bank ABN Amro, a merger that played a major role in the British bank's near-collapse in 2008.
Appearing before the Commons Treasury committee on Monday afternoon, Hector Sants said that once RBS had made a formal offer to acquire ABN Amro in 2007, it was not within his power to disrupt the deal unless he could show it risked immediate failure.
"We are unelected officials and I have said many times it's important we work within the laws set by parliament," he said.
"There was no basis to intervene," he insisted. "You could not have concluded it did not meet threshold conditions."
He added: "The time for the FSA to have intervened was before the offer document was published."
RBS launched a record-breaking £49bn takeover of ABN Amro in July 2007. A recent FSA report concluded that while RBS was already in trouble, the acquisition "made the situation much worse". RBS was eventually forced to accept a taxpayer funded Treasury bail out to keep it in business.
The FSA has been criticised for its failure to regulate the UK's financial services sector effectively in the lead up to and during the banking crisis of 2008. George Osborne plans to abolish the agency, with the Bank of England taking over much of its responsibilities.
Sants told MPs that the principle had been that "boards take responsibility for running their own firms" and noted the ABN Amro takeover bid had been almost unanimously approved by RBS shareholders.
"For the FSA to act as shadow directors and second guess judgements of executives of boards was absolutely not the philosophy," he added.
Pressed by MPs as to whether he could have done more to prevent the deal going ahead, Sants said he would have been accused of a "misuse" of his office at the time if he had attempted to disrupt the deal.
He also hit back at accusations that he had been caught up in the "heard mentality" surrounding the bank at the time that thought it could do no wrong.
"I had the guts to consider the issue. I did what no one else did, including my executive chairman, to get out there and look at the question."
Sants added: "You underestimate the strain and stress the organisation was being put under at that time."
On Sunday RBS chief executive Stephen Hester bowed to pressure and decided to turn down a bonus worth almost £1m.
Sir Fred Goodwin, the chief executive of the bank at the time of the ABN Amro deal, faces having his knighthood taken away.Suggest a correction