Steps to regulate the financial sector are doomed unless a rampant culture of bonuses, which was today blamed for the recession, is stopped.

An influential committee of MPs has accused the regulator of downplaying the role of bonuses on creating the financial crisis.

It was also found the government should have insisted Sir Fred Goodwin was sacked as RBS chief executive.

John McFall, chairman of the Treasury committee, which released today’s report, urged the Financial Services Authority’s Turner Review to recognise the bonus-driven remuneration structures led to a “lethal combination of reckless and excessive risk-taking”.

“The design of bonus schemes was not aligned with the interests of shareholders and the long-term sustainability of the banks and has proved to be fundamentally flawed,” he said.

“Non-executive directors [were] all too willing to sanction the ratcheting up of senior managers’ pay, whilst setting relatively undemanding performance targets,” he continued.

“Looking forward, we are also concerned that the FSA seems not to be taking tackling this issue seriously enough.”

Today’s report also scorns the “polished and practised” apologies from banking executives before the committee.

“Prior to their public fall from grace, the former bankers from whom we extracted apologies were regarded as among the most able and competent leaders in British industry. This makes the charge of management failure impossible to resist,” Mr McFall added.

Commenting on the report, Liberal Democrat treasury spokesman Vince Cable said: “Many senior executives acted deeply irresponsibly with little scrutiny or oversight.

“There must be a radical change in both the culture and regulation of the banking system. Never again should greed be allowed to bring down economies.”

The committee also turned its attention to the events that led up to the granting of Sir Fred Goodwin – the former RBS chief executive – massively controversial £703,000 a year pension.

The MPs found the accounts of City minister Lord Myners and RBS chairman Sir Tom McKillop differing.

“It has been difficult for us to unravel the full circumstances relating to Sir Fred Goodwin’s pension,” the report stated.

“The truth is that this was an incredibly pressured 72-hour period in the history of British banking. We are not surprised that accounts differ.”

However, the MPs stated they were “not convinced that Lord Myners was right to take on trust RBS’s suggestion that there was no option but to treat Sir Fred as leaving at the employer’s request”.

“It would, we believe, have been open to Lord Myners to insist that Sir Fred should be dismissed.”