The City of London has been targeted by bombers in the past

Financial Services Authority (FSA) head Callum McCarthy told City chiefs that the 7 July bombings were appalling but could have been worse.

They had not been a "taxing" test of financial stability and firms should prepare for something worse, he added.

The comments, at a speech in London, were the first public comments about the attacks by the watchdog's chief.

During his Mansion House speech, Mr McCarthy also said lessons should be learned from the July bombings, and those involved in financial services must establish and repeatedly test back-up plans.

Terror target

The authority's comments are the latest in a long line of warnings to the City.

In August, City of London Police Commissioner James Hart revealed that potential targets in the Square Mile financial centre of the capital had been staked-out a number of times.

While there was no specific threat against the City, the mindset of terrorists meant that it was an "obvious target", Mr Hart added.

The City of London has been a target for terror attacks for years - a fact that is highlighted by the number of times the IRA has hit the area.

In April 1992 three people were killed when a bomb exploded outside the Baltic Exchange and one person was killed in April 1993 when a bomb targeted the Bishopsgate area.