Poor management decisions and the last Labour government's light-touch regulatory regime were key factors in the near-collapse of Royal Bank of Scotland, a long-awaited report by the City watchdog has said.
The Financial Services Authority (FSA) highlighted deficiencies in the management, governance and culture at RBS and said that the deal which effectively broke the bank - the £50 billion takeover of Dutch bank ABN Amro - was carried out with inadequate due diligence.
However, it also highlighted its own short-comings in the lead-up to the collapse, saying it operated a flawed supervisory approach which failed to challenge the management of RBS.
It added: "This approach reflected widely held, but mistaken assumptions about the stability of financial systems and existed against a backdrop of political pressures for a 'light touch' regulatory regime."
The FSA identified six key factors in the failure of RBS, most significantly its weak capital position and over-reliance on risky short-term funding in wholesale markets.
In terms of the ABN Amro acquisition, the FSA said RBS proceeded without appropriate heed to the risks involved and with due diligence from the Dutch bank that in April 2007 amounted to "two lever-arch folders and a CD".
The FSA said the seventh key factor in explaining the bank's demise was the management, led by chief executive Sir Fred Goodwin. It said: "The multiple poor decisions that RBS made suggest that there are likely to have been underlying deficiencies in RBS management, governance and culture which made it prone to make poor decisions."
The report includes a recommendation that banks should gain regulatory approval for significant acquisitions and asks whether bank directors should be forced to prove their innocence in the event of a future failure.
However, it confirms that the FSA does not intend to pursue any new enforcement action against any of RBS's former directors.
FSA chairman Adair Turner said: "The fact that no individual has been found legally responsible for the failure begs the question: if action cannot be taken under existing rules, should not the rules be changed for the future?"
UPDATE: Writing in the Telegraph newspaper on Monday, RBS chairman Sir Philip Hampton said that the "change programme at RBS has been huge" since 2008, but offered assurances that the bank would still take the report seriously.
He said: "The bank’s shareholders, employees, and the public were angry at the failure of RBS three years ago. If no action could be taken by the FSA to punish those who led the bank to a £45bn bailout, the public were going to have to see a full and formal reckoning of how that could be the case."
Hampton added that "today’s report is an important milestone" but concluded that RBS was now "getting on with the job of making the bank a success".