The company’s decision to chase fast growth by making high-risk loans was “a manual for bad banking”, according to the cross-party Parliamentary Commission on Banking Standards, that lists a catalogue of management failings in the years before HBOS was rescued by Lloyds in September 2008.
The committee of MPs and peers urge regulators to ban former chief executives Andy Hornby and Sir James Crosby, as well as ex-chairman Lord Stevenson, from taking up prominent roles at UK financial institutions in the future.
“Those responsible for bank failures should be held more directly accountable for their actions and face sanction accordingly,” said committee chairman Andrew Tyrie MP.
The report claims that some parts of HBOS, formed in 2001 by the merger of Bank of Scotland and Halifax, were run in such an “incompetent and reckless” manner that they would have struggled in any market.
It says that the 2008 crisis did not directly cause the bank’s collapse but was “merely the catalyst” that exposed the bank’s dangerous lending practices – which were far more reckless than its rivals.
“As a home-grown banking failure in traditional banking, HBOS stands alone,” the report concludes.
Corporate governance standards in the run up to the crisis are described as “a model of self-delusion”, with the board powerless to influence decisions made by some individual executives.
The bank’s rapid transformation into a global lending giant meant senior managers, who were mainly from the retail business, had little expertise of the risks associated with the corporate and treasury businesses.
According to the committee this became a lethal cocktail when combined with a brash management culture that was underpinned by a belief that the bank’s growing market share “was due to a special set of skills which HBOS possessed and which its competitors lacked”.
As a result shareholders, taxpayers and the wider economy paid “a heavy price” for the board’s calamitous decision making, as the value of the firm’s loan book was hit by impairments totalling £47bn between 2008 and 2011.
Although the report attacks the Financial Services Authority’s “thoroughly inadequate” relationship with the bank, the watchdog comes off fairly lightly, with weak regulation cited as only partly to blame.
Only one former HBOS employee has been censured for their role in the collapse. Last September former corporate lending chief Peter Cummings was fined £500,000 and banned from the financial sector for life.
Former chief executive Hornby now runs gambling business Coral. Yesterday the company insisted he has the “complete backing” of the bookmaker’s board.
Stevenson and Crosby could not be reached for comment.
A Treasury spokesman said: “The failure of HBOS was a symptom of the financial crisis and the regulatory system in place at that time.”
It is understood the government will await the newly formed prudential regulation authority’s parallel HBOS investigation, due in the autumn, before deciding how to respond.