Margareta Pagano: Why didn't the watchdog bark as Libor alarms were sounded?

A Barclays board director once told me, a few years before the financial crash, that if the investigators from the Financial Services Authority who visited the bank for regular check-ups showed any flair, they would hire them. But if they weren't up to scratch, they would run rings around them.

His remarks say much about the City's cynical attitude to the FSA but even more about the quality of the people who have, and do work for the regulator. If you look back at the FSA's stewardship of the City over the past few years, before and after the crash, you have to question what on earth the top bosses were doing as they have missed scandal after scandal; Northern Rock, PPI mis-selling, Libor and the mis-selling of interest rate swaps to small businesses to name a few.

That's why it wasn't enough for Lord Turner, at the FSA's annual meeting yesterday, to denounce the investment banking industry for its "cynical greed": we knew that, that's what drives them and always has, and it's why we are supposed to have regulators such as the FSA to rein in the greed. And frankly, his comment that the Libor scandal has come as a "huge blow" to the banking industry's reputation is so self evident as to make you cry.

Lord Turner also demanded action to "purge the industry of the culture of cynical entitlement which was far too prevalent before the crisis". But isn't that his job? Why didn't he take the action he is calling for before? It's pathetic to say the FSA didn't have the requisite powers; of course it did, but has failed to use them properly or to pass on its concerns. Talk about stables and all that.

It's not what you would expect to hear from the UK's top regulator, who was in charge when the Libor racket was in full swing.

It's no surprise Douglas Carswell MP, not one to mince words, slammed Turner's FSA as "monumentally useless" yesterday. But he also asked why it was US regulators, after US newspaper reports, which investigated Libor in London even though the FSA has 6,000 pages of rules.

It's the right question and to those who say this is not fair – that the FSA didn't regulate the Libor fixing – the reply is that the FSA was warned on many occasions that something odd was going on in the interbank market.

There were certainly enough questions being asked for it to have picked up on what was happening, or at least to pass on concerns to those who should. Bloomberg was the first, carrying an article in 2007 asking why was it that Barclays' Libor submissions were the highest of all the banks. Doesn't Lord Turner read the newspapers? You would expect that after Bloomberg, and then more reports in the Wall Street Journal, that the regulators would start digging. The fact that the FSA didn't backs up much of the criticism against it that regulators were asleep on the watch, had become box-tickers rather than sniffer-outers.

We also know now there were whistle-blowers at Barclays who took concerns to the British Bankers' Association and to the FSA in December 2008. According to the US Commodity Futures Trading Commission, a senior Barclays Treasury manager told the BBA he believed the Libor panel banks, including Barclays, were submitting rates that were too low. An internal Barclays email following one of these conversations shows the Barclays manager told the FSA that Libor "settings seemed incorrect". Who at the FSA received that email, and what did they do with the information?

There are similar questions now being asked of the Bank of England, following Bob Diamond's decision to air his conversations about Libor setting with the deputy governor, Paul Tucker, in public.

It's going to be fascinating to hear Mr Diamond give a fuller account at today's Treasury Select Committee. Will he claim the BoE and the FSA knew what was happening; that they colluded to show the banking system was healthier than it was? Or will he hide behind his lawyers for fear of pending legal action?

Neither Mr Diamond's exit from Barclays, nor Lord Turner's limp defence of the FSA, are enough to restore trust in the banks. Both put themselves up as poster boys of their industries and are now sheltering behind excuses, in Mr Diamond's case that he was acting on orders from on high and, from Lord Turner, that he didn't have the right powers to launch his own Libor inquiry. What is interesting is that the public has got the biggest nose of all, and has shown it can sniff out injustice.