The Financial Services Authority was sounding alarm bells about Sir Fred Goodwin's management of Royal Bank of Scotland as far back as 2003, it emerged yesterday.
TheCity watchdog said in its report that it had identified "a risk created by the perceived dominance of RBS's chief executive" eight years ago.
While the FSA said that the CEOs of large firms usually "tended to be assertive, robust individuals", it felt in the case of RBS that the "challenging management culture led by the CEO" raised particular risks. Despite this, Sir Fred was allowed to remain in charge of the bank until the financial crisis when RBS needed more than £40bn of taxpayers' funds to keep afloat.
The report raised concerns about Sir Fred's pay packages, "which were among the highest for major UK banks" and "may have played any part in discouraging robust and effective challenge of the CEO by his direct reports".
Despite finding Sir Fred and the bank's wider management to be culpable for the failure, the report said it would be impossible to bring action against him, saying errors of "commercial judgement" were not enough to lead to a sanction.