HBOS was "finished" as a bank before its takeover last year, a director of the new Lloyds banking group said today.
Archie Kane told a Scottish Parliament committee the ailing institution effectively "shut down" to business customers in 2008 as the banking crisis intensified.
Even the takeover by Lloyds TSB could not prevent the newly formed Lloyds Banking Group seeking a £17bn state bailout to keep it afloat. Taxpayers now own 43% of the new bank.
Mr Kane said: "I think it’s quite clear now that HBOS could not have survived on its own - HBOS was finished as an entity."
He was appearing before Holyrood’s economy committee as part of its inquiry into the future of the banking sector in Scotland.
Mr Kane added: "HBOS in terms of the corporate SME (small and medium enterprise) market basically shut down in 2008.
"It just wasn’t operating because it basically ran out of liquidity and funds."
But he insisted the new group was "breathing life" back into the Bank of Scotland, which will be its main brand north of the border.
"The Bank of Scotland is up and running," he said.
"It’s open for business, it’s competing in the SME market and we intend that the Bank of Scotland will be a very strong competitive force in Scotland."
Mr Kane said the "risk culture and approach to risk" that the new bosses found at HBOS was not in line with their expectations, as well as the decision making.
He said: "We would not have handled decisions that way."
Mr Kane said the problems in the corporate lending arm of HBOS had been known about before the takeover, but the "steep and rapid" economic decline from the end of 2007 had not been predicted.
He said: "That was the one thing we underestimated, but we were not alone in that view."
The takeover itself only went through after the Government agreed to waive competition rules.
The Lloyds group employs about 20,000 people in Scotland but has announced 1,000 job losses since the takeover, Mr Kane said.
As well as the £17bn it received from the taxpayer, the new Lloyds banking group had also indicated it was ready to join the state-run asset protection scheme with potential toxic debts of £260 billion.
About 80% of this came from HBOS, Mr Kane said today.
In the end, though, it did not join the scheme and Mr Kane said the overwhelming backing of shareholders for its £13.5bn rights issue last week showed the confidence markets have in the bank.
But he admitted: "We in the banking world have to learn from what happened recently.
"I understand that not everyone agrees with the merger of Lloyds and HBOS but I believe the new enlarged group will deliver long term value for our shareholders."
