Andrew Haldane, the institution's executive director for financial stability, told a risk management conference that the current system had "failed spectacularly", the Herald reports.
He added that incentive schemes had meant risk managers had turned a "collective blind eye" to the risk being built up during the past decade.
Now, with the collapse of the sub-prime mortgage market and the subsequent failures of the banks Lehman Brothers and Northern Rock, it is clear that risk management needs to be reassessed, Mr Haldane commented.
"A transformation in the standards of risk management is now needed as a matter of priority." he stated.
His comments come after last week's Treasury select committee hearings, where HBOS' former head of group regulatory risk said he had been "summarily dismissed" by its then-chief executive, Sir James Crosby, for warning that the bank's risk was too high.
Sir James, who resigned from Financial Services Authority, said there was "no substance" to the claims.