Nobody can accuse Lord Turner of Ecchinswell of shirking a challenge. In the past few years the former McKinsey consultant has tackled problems such as Britain's pensions and global warming. Since last month, his in-tray has also included trying to sort out the credit crisis.

He took over as chairman of the Financial Services Authority at midnight on Saturday, September 20, six days after the collapse of Lehman Brothers (NYSE: LEH - News) set off a sequence of events that caused a worldwide crisis of confidence in financial markets.

Since then he has been involved in nationalising Bradford & Bingley, the mortgage lender, designing a £400bn banking bail-out and dealing with the fall-out from the crisis in Iceland.

Last weekend he flew to Washington to discuss the global response to the crisis with central bankers and regulators. He spent most of the time on the phone to London as the government, Bank of England and FSA finalised the injection of £37bn into Royal Bank of Scotland, HBOS and Lloyds TSB.

When he accepted the offer in June to replace Sir Callum McCarthy at the FSA, Lord Turner assumed the worst of the financial crisis was over. In his first in-depth interview since taking charge, he admits to being shocked by recent events. "I had never seen, and nobody had ever seen, this extraordinary thing where confidence goes," he says. "Nobody had seen a money market squeezed like that."

Though markets are still absorbing the consequences of the rescue operations mounted on both sides of the Atlantic, Lord Turner is confident the financial system is no longer at risk of complete collapse.

He acknowledges the need for urgency means the authorities' response may not have been perfect. But he maintains that radical moves, including the FSAforcing the UK's largest banks to boost capital reserves by almost £50bn, were necessary.

"I'm confident that even if the economic historians suggest there could have been something slightly different, what was done was what had to be done, and had to be done to prevent what was a tailspin of confidence in the financial system."

The hope is the rush of bank rescues will buy politicians, regulators and central bankers time to come up with a more considered response. Lord Turner accepts that coming up with a co-ordinated global solution will be complicated, not least because of the many national, regional and international institutions that share responsibility for monitoring the global financial system. "I've become aware of how many different bodies I can go to meetings of," he says.

For someone in the job such a short time, he displays an impressive grasp of the macroeconomic roots of the crisis and a detailed understanding of the issues that need to be debated.

He advocates tackling a host of topics, including the limits of mark-to-market accounting, the need for a new system that sets capital and liquidity at banks, an overhaul of incentives used by investment banks and the strengths and weakness of the system that originates and distributes financial risk. But he warns against trying to distil a complex global crisis into simple slogans: "One must avoid saying it must all be about bankers' bonuses."

Given the scale of the task it is hard to know where to start, although for the FSA the most pressing challenge will be setting minimum capital requirements for banks. Last weekend, the regulator shocked many bankers by effectively setting aside years of modelling of financial risks when it forced banks to recapitalise.

"We reached a conclusion that we couldn't simply proceed on the rules we had proceeded on in the past because there had been a crisis of confidence so big that you had to rapidly agree a level of capitalisation so large that no rational person would be worried about lending to these banks," he says.

It is unclear how long the new approach will remain in place, but it appears unlikely the FSA or any other regulator will allow banks to go back to the Basel II framework for measuring capital without some fundamental improvements. Lord Turner even hints at adopting a "countercyclical" approach that would force banks to set aside greater reserves during a boom.

It is also far from clear when an international approach will be agreed. "We are going to have to return to a rule-driven approach and ideally that should be an international set of rules. And we are just going to have to see how rapidly the world can get back to an agreed set of rules."

But didn't it take international regulators nine years to agree on Basel II? "We'll have to do it a bit faster than that," he says with a smile.

He is "open-minded" about the FSA's attempt to replace rules with broad principles, but is adamant the regulator must focus on risks and the outcome of its actions rather than on enforcing processes.

Lord Turner also advocates keeping an eye on hedge funds. They are not subject to heavy regulation but could evolve to pose a systemic risk, much as the Wall Street investment banks did during the past few decades.

"What we have to do is keep looking at the hedge funds and see whether some go through that same process of transition, and if they do we mustn't realise that on a Bear Stearns weekend."

During the interview, stock markets around the world are in retreat as investors increasingly realise the banking bail-outs may have come too late to avert a severe slowdown.

But Lord Turner insists it could have been much worse. "We don't know how significant is going to be the economic downturn," he says, while insisting intervention by regulators means it will not be as bad as it could have been. "If we had allowed that to turn into a systemic failure of major banks, with a long-term impact on confidence in the banking system, then we could have had something much more serious."