Skip to main content

The failure of HBOS

This article was previously published on the Leadership Foundation website.

A new report for the Financial Conduct Authority (FCA) and the Prudential Regulatory Authority considers the reasons why HBOS failed.



HBOS was created in 2001 following a merger of Halifax (a former building society) and the Bank of Scotland (a medium-sized bank). In September 2008 the merger between HBOS and Lloyds TSB was announced. Subsequently, both HBOS and Lloyds TSB were recapitalised by the Government.



The report, which extends to some 400 pages, examines the reasons why HBOS failed. Part 3 (pp.193-246) examines issues relatiing to management, governance and culture.



The report finds serious failings of governance at HBOS. It draws attention to weaknesses in the composition of the Board of Directors, including the lack of a non-executive director (NED) will experience of corporate banking. For this and other reasons, cites a ‘lack of effective and informed challenge by the Board’. The report also suggests the induction process for new NEDs was lacking, and there was no systematic process for updating directors about newly emerging trends and developments in banking.



The report highlights the limited role played by the Board in the development of HBOS’s strategy, and a failure to tackle known weaknesses in the organisation's funding. Weaknesses were identified, but never addressed. Further, there was no clear articulation of the risks associated with Group’s strategy, and a failure of the Board to determine its appetite for risk. HBOS was also complacent in believing that the preceding, and largely benign, economic environment would continue. As a result there were no strategies in place to mitigate changes in the external operating environment.

The report (see para. 937-941) lays many of the failings of the Board at the door of the Chair of the Board of Directors

Keep up to date – Sign up to Advance HE communications

Our monthly newsletter contains the latest news from Advance HE, updates from around the sector, links to articles sharing knowledge and best practice and information on our services and upcoming events. Don't miss out, sign up to our newsletter now.

Sign up to our enewsletter