The City regulator has called for tougher controls to ensure that bank chiefs who have mismanaged their companies are banned from the industry.
Financial Services Authority (FSA) chiefs warned against introducing new criminal offences for reckless activity in the sector.
But they told MPs on the Treasury Select Committee that there needed to be clearer powers to ensure that where individuals were found to be incompetent they could be prevented from working again for financial institutions.
FSA chief executive Hector Sants said: "Realistically, when you look back in the round over what's happened, by far the greatest category of error is a misjudgment which could be seen - I would see - as a judgment on fundamental competency.
"But that is different from recklessness and therefore having clearer powers to ensure that there is a presumption that once incompetency is demonstrated that means you can't get back into the industry... would be a major step forward."
Asked whether reckless mismanagement of financial institutions should be criminalised, the head of the planned Financial Conduct Authority (FCA) - one of the successor bodies which is to take over from the FSA - cautioned against the idea.
Martin Wheatley, the FCA's chief executive-designate and currently managing director of the FSA's consumer and markets business unit, said: "I think we have to be very, very careful about what we consider to be criminal actions.
"The challenge we all have is we want good people to be in those roles... Clearly there is a trade-off as to whether the risk and reward of that role is worth the best people going into it.
"I think we have to have the appropriate level of penalties for the appropriate level of offences. That's something we have to think very carefully about."
Margaret Cole, interim managing director of the FSA's conduct business unit, added that powers to exclude people who have mismanaged financial institutions from similar roles in the future needed tightening up.
"I think I would be extremely wary of introducing a criminal offence in connection to management or mismanagement of a financial institution," she said.
"But I think what we should do is look at extending the consequences of that through the regulatory structure and perhaps arrive at a situation where it is easier for us to ensure that people that have been involved in mismanagement of financial institutions before are very clearly kept out of working in that industry in the future.
"That isn't straight forward as it currently stands... I think we want to be in a world where we can be clearer that people who mismanage institutions will never be able to work in the financial services industry again."