FDIC's Bair: Banks lobbying against stricter rules undermine the financial system

She said most of the rules made only marginal improvements while "fundamental transformative changes" have not happened.

To that end, Bair argues that political money is playing a role in getting regulators to back down from making those needed stricter rules.

"I don’t think the industry lobbying effort has been a responsible one, and it saddens me," she said. 

"It still undermines trust in the financial sector to see this spectacle in Washington."

She urged more changes, especially amid record bank profits. 

"They are as profitable as they have ever been, but the economy is still hurting.”

Overall, she said that excess leverage at banks "is the number one problem still not solved following the financial crisis" and it leaves banks in a vulnerable position that could lead to another financial collapse. 

"Leverage was a key driver of the crisis and the fragility of the system and the reason we needed bailouts, they did not have enough equity to absorb losses once the losses came," she said. 

She also said that banks need to reduce their reliance is on short-term debt, simplify their legal structures and that she would "wall off insured deposits from securities and derivatives trading activity and make sure it just supports commercial banking."