Bailed-out British bank HBOS was so badly run it would have failed even without the 2008 financial crisis and the regulator should consider banning its former bosses from the industry, UK lawmakers said in a report.
The Parliamentary Commission on Banking Standards, tasked with finding ways to reform UK banks, said HBOS was an "accident waiting to happen", with bad lending and losses across the business likely to have led to its insolvency even without the funding and liquidity problems of the financial crisis.
HBOS, Britain's biggest mortgage lender, had to be rescued in 2008 with a government-engineered takeover by rival Lloyds , which subsequently needed a 20 billion pound (now $30 billion) bailout to survive.
The committee said regulators bore some of the blame, but primary responsibility lay with Dennis Stevenson, chairman from the formation of HBOS in 2001 until its collapse, and former chief executives James Crosby and Andy Hornby.
There was a "colossal failure of senior management and the board", said Commission chairman Andrew Tyrie, a Conservative lawmaker who expressed surprise that only Peter Cummings, who was head of corporate lending at HBOS, had so far been punished.
"The Commission has asked the regulator to consider whether these individuals should be barred from undertaking any future role in the sector," Tyrie said in the report published on Friday.
Crosby was chief executive of HBOS between 2001 and 2006 before being succeeded by Hornby.
The trio earned millions during their time at the bank and in subsequent roles. Crosby was paid close to 8 million pounds during his tenure as HBOS's chief executive. Hornby was earning 1.9 million pounds a year before leaving the bank, while Stevenson's package was worth over 800,000 pounds a year.
Following the report, Crosby, 57, promptly resigned as an adviser to private equity firm Bridgepoint. He is also senior independent director at the world's biggest catering company, Compass , which declined to comment on whether he would keep his 125,000-pound-a-year position.
Cummings was fined 500,000 pounds ($759,000) by the now disbanded Financial Services Authority (FSA) in September and banned for life from the industry.
Hornby declined to comment on the report. After leaving HBOS, he worked as chief executive of healthcare group Alliance Boots, earning over 2 million pounds a year, and now runs betting shop chain Coral,
Coral had nothing but praise for Hornby, 46, and a spokesman said his position was safe. "Coral is performing extremely well, and we are really pleased with the great job Andy is doing."
Stevenson, 67, who sits in the upper chamber of parliament, could not be reached for comment.
HBOS was created in 2001 by a merger between Halifax, a former mutually-owned savings and loans firm, and the 300-year-old Bank of Scotland.
It ramped up lending using cheap funding on the wholesale markets rather than safer customer deposits, and its high-risk strategy was exposed when that funding dried up after the collapse of U.S. investment bank Lehman Brothers in 2008.
HBOS's managers blamed the financial crisis for the collapse, but the Commission said the bank's business model was inherently flawed and its board was a "model of self-delusion".
"The sums would never have added up," Tyrie said. "The Commission has estimated that, taken together, the losses incurred by the corporate, international and treasury divisions would have led to insolvency, regardless of funding and liquidity problems, had HBOS not been bailed out by both Lloyds and the taxpayer."
The takeover by Lloyds was completed in early 2009.
The Commission said 25 billion pounds was lost on bad corporate loans, and there were losses of 15 billion at its international business and 7 billion at its treasury unit.
The report said the role played by the FSA, Britain's financial regulator which was replaced last week by two new bodies, had been "thoroughly inadequate".
Britain's finance ministry said the failure of HBOS was a "symptom of the financial crisis and the regulatory system in place at that time". It said the introduction of a tighter regulatory regime would help to prevent future failures.
The responsibilities of the FSA have been passed to two new bodies, the Financial Conduct Authority and the Prudential Regulation Authority.
An FSA report into the collapse of HBOS has been delayed several times, and is not expected to be released until the end of September, according to minutes from a February 21 FSA board meeting released this week. That would be five years after the HBOS's demise.
(Editing by Will Waterman and David Stamp)