The long awaited report by Britain's Financial Services Authority, running to 452 pages, criticised former Chancellor and Prime Minister Gordon Brown for encouraging "light touch" regulation, and RBS's weak capital and funding and its decision to buy parts of ABN Amro.
"The decision to make a bid of this scale on the basis of limited due diligence entailed a degree of risk-taking that can reasonably be criticised as a gamble," the report said.
The FSA was critical of its own role, but said it was under political pressure to operate a hands-off regulatory regime.
There was "a sustained political emphasis on the need for the FSA to be 'light touch' in its approach and mindful of London's competitive position," the report said. On several occasions in 2005 and 2006 Brown said he didn't want "unnecessarily restrictive and intrusive regulation" to impair London's competitiveness.
The FSA said flaws in its own supervision "provided insufficient challenge" to RBS and said regulators should in future be given greater powers to block bank takeovers.
Under former Chief Executive Fred Goodwin RBS came within hours of running out of cash in October 2008 and was only saved by a 45-billion pound taxpayer bailout.
"Taxpayers should never have had to rescue RBS," said RBS Chairman Philip Hampton. "As we build the new RBS, we are learning the lessons of the past and working to regain the trust of the public. Our new leadership has made significant progress in making the bank safer and more focused on the needs of its customers."