The full internal review into how effectively the Financial Services Authority supervised Northern Rock won't be made public until some time next month. However, the summary published yesterday just about says it all.

The key failings identified and the seven-point plan to beef up the FSA's future approach to its role leave little doubt that supervision, in the Rock's case, has been a spectacular regulatory failure.

"It is clear from the thorough review carried out by the internal audit team that our supervision of Northern Rock in the period leading up to the market instability of late last summer was not carried out to a standard that is acceptable," concludes FSA chief executive, Hector Sants.

Ouch! No wonder key staff have already gone. Unlike civil servants working for the Scottish Government, piloting their "You're a Star" scheme, there will be no little gifts of flowers, fruit bowls, chocolates or even a voucher for Legoland or La Senza for work at the FSA which goes beyond the call of duty.

Rather, the financial regulator is having to take a good, hard look at itself. It will hire around a hundred more trained supervisory staff, raising the total by a fifth. Senior management will be told to increase their own contact with "high impact" commercial banks. Banks which, when they get into difficulty, threaten to bring down the system.

FSA supervisors will also meet firms' external auditors at least once a year. The prevailing FSA view on how well each bank is managing core risks like capital adequacy and liquidity will be reviewed every six months.

This list of must-do-better initiatives leaves the outside observer wondering what supervision of a bank like Northern Rock actually amounted to up till now. Sloppy record keeping, certainly. Too little contact as well. Too much touching faith that the Rock knew what it was doing and required only light-touch regulation?

Of all the major UK banks Northern Rock was one of the simplest, single-mindedly focused on building its share of the UK mortgage market. However, in its rapid rise from provincial building society to Footsie powerhouse, it adopted one of the most extreme business models in the entire commercial banking sector.

The mismatch between its modest deposit base and its towering lending ambitions left it increasingly dependent on short-term borrowing in the money markets. When these markets seized in last autumn's credit crunch and the cost of such borrowing soared, the scale of the resultant risks the Rock had been running was cruelly exposed.

Sants can justifiably argue that the Rock's failure should "first and foremost be attributed to the failure of its board and executive to create a durable funding model". They certainly deserve a very large share of the blame. However, didn't the FSA fail to distinguish between the simplicity of this bank's commercial purpose and the risk-strewn means it had adopted to reach that end?

Compared with a Royal Bank of Scotland, a Barclays or an HSBC, Northern Rock was still a straightforward mortgage bank. Isn't that the mindset that led the FSA to probe less deeply into the risks it was running and put so few people on its case? Did the regulator have a clear view of what a "durable funding model" for banks should look like?

There is a suggestion in this summary report that, even as the Rock began crumbling last September, the FSA still thought one of its partners in the UK's tripartite system of regulation, the Bank of England, would come up with a get-out-of-jail card.

The FSA's approach to liquidity, we are told, "reflected a presumption that, in the event of a crisis like that experienced in August 2007, general market liquidity provided by the Bank of England would be increased and, in extremis, liquidity would be provided for systemically important institutions."

But it's not at all clear that the FSA saw Northern Rock as "systemically important". If it had, it would have devoted as much time and effort supervising what it was up to as it accorded other high street banks.

More significantly, it clearly misread the Bank of England's determination not to reward moral hazard. By September 12, in a memorandum to MPs on the Treasury select committee, Bank of England Governor Mervyn King dispelled all doubts. While conceding that turning on the lending taps against "illiquid collateral" might help get inter-bank lending back to normal, King went on: "On the other hand, the provision of such liquidity support undermines the efficient pricing of risk and by providing ex-post insurance for risky behaviour. That encourages excessive risk-taking, and sows the seeds of a future financial crisis. So central banks cannot sensibly entertain such operations merely to restore the status quo ante."

If two arms of the tripartite arrangements brought in by Gordon Brown in 1997 were so at odds with each other about how to respond to a crisis when banking supervision fails, it is surely time for the third arm, the Treasury, as proxy for government, to review the regulatory hymn sheet and find one from which all of them can sing, in tune.