Bank of England Governor Mervyn King launched an attack on the banking industry's failure to reform despite "breathtaking" levels of taxpayer support.
The Governor warned the public would be paying for the financial crisis "for a generation" and said there was no reason why guarantees could not be limited to traditional banking rather than casino-style trading.
Despite almost £1 trillion spent propping up banks, Mr King said last night: "To paraphrase a great wartime leader, never in the field of financial endeavour has so much money been owed by so few to so many.
"And, one might add, so far with little real reform."
He said the the "massive support" to the global banking sector was "necessary to avert economic disaster" but warned it had created "possibly the biggest moral hazard in history".
His comments came as City firms prepare for bumper bonus payouts a year on from the near-meltdown, helped by rising stock markets and a lack of competition.
A report today said the City was expecting a 50% rise in annual bonuses to £6 billion.
The Centre for Economics and Business Research said better-than-expected second and third quarter figures from the banking industry will result in a leap from the £4 billion seen in January's annual bonus round.
And last week investment bank Goldman Sachs said it had earmarked a mammoth £10.3 billion in compensation and benefits for staff for the first nine months of 2009 alone.
At a speech to business leaders in Edinburgh, the Governor said the current arrangements were impractical and added that "it was hard to see why" support could not be limited to retail banking.
"Anyone who proposed giving government guarantees to retail depositors and other creditors, and then suggested that such funding could be used to finance highly risky and speculative activities, would be thought rather unworldly. But that is where we now are."
He said banks should not be encouraged to earn their way out of state support by "resuming the very activities which got them into trouble in the first place" and called for a "serious review" of how the banking sector is regulated.
He said: "Although there are no simple answers, it is in our collective interest to reduce the dependence of so many households and businesses on so few institutions that engage in so many risky activities.
"The case for a serious review of how the banking industry is structured and regulated is strong."
But, he warned: "The belief that appropriate regulation can ensure that speculative activities do not result in failures is a delusion."
He said the UK banking sector was "highly concentrated" with the so-called 'big four' of Barclays, HSBC, Lloyds and Royal Bank Scotland, pointing out that the latter two are "largely in state ownership".
He said: "As in the English Premier League, getting into the top four will not be easy for those outside it. But in both cases I hope greater competition will produce less rigidity in the composition of the top four."
Banks already face plans to make 'living wills' for their orderly wind-down in cases of failure but further options include "separation of activities... or ever increasingly detailed regulatory oversight".
The Bank of England will later this week lay out details of policy tools which it hopes will "turn down the music just as the dancing gets a little too wild".
Official figures on Friday are expected to show the UK returning to modest growth after five quarters of recession but Mr King added: "We should be under no illusion that the path to a sustained recovery will be smooth and painless."
He added: "If unsustainable capital flows provided the fuel and an inadequately designed regulatory system ignited the fuel, the past two years have shown how dangerous it is to let bankers play with fire."