Sir Mervyn King has urged the Government not to delay reforming the financial sector and admitted more should have been done to avert the banking crisis.
The Governor conceded the Bank of England should have "shouted from the rooftops" that banks had been allowed to borrow and lend too much.
He also said more should have done more to convince the Government to recapitalise banks sooner and said a decision to take away the power of regulation from the Bank in 1997 returned "to haunt us".
Sir Mervyn said he sympathised with people who felt angry about the banking crisis, which sparked a deep recession that caused one million job losses.
He added: "To many of you, this will seem deeply unfair, and it is. I can understand why so many people are angry."
The root of the last crisis was that banks over-extended their activities in the run-up to the financial crisis, with their balance sheets increasing in a generation from around a half of national income to more than five times national income.
A new Financial Policy Committee (FPC) as part of the Bank will take control of regulating the City next year, but Sir Mervyn said further reform was "essential".
He urged the Government to bring in the Independent Commission on Banking's recommendations to force banks to separate their retail and casino-style investment banking arms "sooner rather than later".
Sir Mervyn said: "The Bank's new Financial Policy Committee will have the power to step in and prevent a hangover by taking away the punchbowl just as the party in the financial system is getting going."
Crisis 'far from over'
The Bank is "up to the task" of resuming responsibility for regulating the City next year, he told the BBC Today Programme Lecture, and would step in to prevent lenders over-extending themselves again.
There had been a "failure of imagination" to appreciate that some of the biggest banks, such as Royal Bank of Scotland and Lloyds, could need a bail-out, partly because there had been no boom or period of high inflation to suggest a crash, he claimed.
Measures have now been put in place to allow banks to fail and to force lenders to build up greater reserves of cash to make future bail-outs less likely.
And the FPC, which will come into force next year, will see the Bank take control of regulation again, when the Financial Services Authority is disbanded.
But the present crisis is "far from over", as the eurozone debt crisis demonstrated on a weekly basis, while the UK's economy was still not back to health and inflation still too high.
He added that dealing with the consequences of our "bad banking situation" is likely to be "a long, slow process" and "the crisis has cast a long shadow".