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 it 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 from around a half of national income to more than five times in a generation.
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."
He added: "That won't make us popular among bankers, politicians and even at times some of you, and it's not supposed to. But it will, I hope, reflect the trust and confidence that the citizens of this country can place in the Old Lady of Threadneedle Street."
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.