The US government has had to battle the financial crisis without all the tools it required to do so effectively, Hank Paulson, the outgoing US Treasury Secretary has told the Financial Times.

In one of his last interviews before leaving office, Mr Paulson said “we’ve done all this without all of the authorities that a major nation like the US needs”.

He said that even after Congress in October approved the $700bn (€496bn) troubled asset relief program, the US still lacked tools such as an adequate special bankruptcy regime for non-bank financial firms.

“We’re dealing with something that is really historic and we haven’t had a playbook,” he said. “The reason it has been difficult is first of all, these excesses have been building up for many, many years. Secondly, we had a hopelessly outdated global architecture and regulatory authorities  . . . in the US.”

However, Mr Paulson was upbeat about the progress that has been made since Tarp was passed and defended his decision to reallocate funds originally slated for asset purchase towards financing capital injections and supporting risky Federal Reserve lending programmes.

“People say banks aren’t lending enough,” he said. “I agree with them – banks aren’t lending enough. But there would be much less lending if the actions were not taken that were taken to increase the confidence in the banks.”

Mr Paulson said any future regulatory overhaul should emphasise “better and more effective” regulation. It also needed to make sure that infrastructures and powers were robust enough to allow large institutions to fail.

“The organisations [financial firms] cannot be too big or too interconnected to fail,” he said.