But Lord Adair Turner, speaking as he unveiled a long-awaited report into the bank's collapse, admitted the FSA was "not as tenacious as we should have been" in pursuing change at the institution in the years before the Government bailout.
The report, which was only published after a public outcry when the FSA said it had shut its investigation into the bank last year, laid bare the state of the bank before the £45 billion Government bailout in 2008 that has left the taxpayer sitting on a £27bn paper loss.
The 452-page document noted that RBS decided to pursue its €72 billion (£57.5bn) takeover of ABN Amro in 2007 on the basis of information amounting to just "two Lever Arch folders and a CD" handed to it by the Dutch bank.
RBS was "overconfident" following the successful integration of NatWest, when it beat a rival takeover bid by Bank of Scotland in 2000, the FSA found.
However, its report also pointed out that most of RBS's losses in the banking crisis came from its own loans and investments, not those of ABN Amro.
"Even without ABN Amro, RBS would have had significant problems; but ABN Amro made the situation much worse," the report said.
The report confirmed the FSA's previously stated view that it cannot take enforcement action against any RBS directors under current rules.
Lord Turner said: "Royal Bank of Scotland failed because of significant mistakes and errors driven by the management and the board of RBS."
But he said there were also problems with the strength of global regulations and the FSA did not challenge the bank enough.
RBS chairman Sir Philip Hampton, who was appointed in 2009 to oversee the bank's turnaround, said: "Taxpayers should never have had to rescue RBS.
"As we build the new RBS, we are learning the lessons of the past and working to regain the trust of the public."
The role of Sir Fred comes under intense scrutiny in the report. "As early as 2003, the supervision team had identified that the RBS CEO's assertive and robust style might create a risk," the report said.
Asked by The Herald why the FSA hadn't forced through change at RBS, Lord Turner said: "Our overall conclusion is although the issue was on the table, we were not as tenacious as we should have been."
Regulators were dissuaded by RBS directors from appointing an independent reviewer to look at management controls.
And such was RBS's sway over the FSA that it allowed Sir Fred to change a letter to the board that was intended to highlight concerns about management and the risks of its corporate lending book, a move Lord Turner admitted was due to "a style of operation at the time that was too weak".
RBS also "actively resisted" letting regulators hold one-to-one meetings with non-e xecutives to check how they were challenging managers, and the FSA was "insufficiently robust" in pursuing them, the report found.
The FSA admitted at one point it had just six regulators overseeing RBS, and for a period the same team was also monitoring Barclays. RBS now has 23 FSA officials looking at its conduct.
Peter Vicary-Smith, chief executive of consumer group Which?, said: "The FSA report is a damning document. It reveals the inherent flaws in a corporate culture that focuses on bonuses and short-term profits."
Asked if he thought it was fair that Sir Fred retains a £342,500-a-year pension and his knighthood, Lord Turner replied "no" but said his criticism was aimed at the industry and not individuals. Lord Turner said investigators had made inquiries into the impact of Sir Fred's alleged affair with a colleague but only to the extent of considering the role that the person played in the organisation.
"Did we go back to see how focused Sir Fred was on the job? No," he added.
Lawyers for those named in the report have been given weeks to pore over the report and request changes before its publication.
But Lord Turner insisted: "If you saw it before it went into legal process and afterwards you would not think it had changed in any material fashion."
In a statement to the Commons last night, Financial Secretary to the Treasury Mark Hoban said the report "serves to remind us of the gross failures of the previous regime and the previous government".
Shadow Financial Secretary to the Treasury Chris Leslie said the report confirmed there was "institutionalised dysfunction" at the heart of RBS.