Bob Diamond offered to quit as the head of Barclays Capital 14 years ago but was turned down by the then chief executive Martin Taylor.
But Mr Taylor also confirmed that he himself quit the bank later the same year after the rest of the board refused to look at his suggestion that the investment bank and retail bank should be separated.
"I deserve blame for being among the first to succumb to the myth of Diamond's indispensability, to which some in Barclays were still in thrall only a matter of days ago," Mr Taylor writes in The Financial Times.
He says that in the spring of 1988 he was chief executive of the bank and Mr Diamond, who resigned last week over the Libor-fixing scandal, was in charge of the investment bank which, following the sale of BZW, had concentrated on debt capital markets. Mr Taylor said: "Barclays Capital under his leadership was rapidly gaining the confidence of the Barclays board. But it needed bigger trading limits, if it was to develop its business."
Mr Diamond was keen to expand into the domestic bond markets of devloping economies such as Russia. He asked Barclays' cedit committee, chaired by Mr Taylor, to be allowed to raise the bank's exposure to Russia fivefold. Mr Taylor said he halved that request and within months Russia had defaulted.
It turned out that BarCap had gone significantly over the set credit limits and made huge losses. Mr Taylor said: "The traders were fired. Their leader maintained that he had known nothing about what was going on. He felt terrible. He loved Barclays. He offered to go. I concluded that the embryonic business that BarCap then was would fall apart without him, and that he should stay."
Mr Taylor added that Barclays' losses were worse than most of its rivals because of the failure to respect internal controls. He said the breach was not made public although regulators were "fully aware of it". The share price also took a big hit.
After the Russian losses, Mr Taylor who sat on Sir John Vickers' Independent Commission on Banking, said: "The board decided, unsurprisingly, that controls should be tightened up. That is what boards decide. I drew a different conclusion. I had observed similar things going on elsewhere, and I decided that it was neither safe nor sensible to have trading businesses mixed up in a retail and commercial banking group."
But the board "seemed not to want to know", according to Mr Taylor who quit in November 1998.
Barclays only avoided nationalisation, claims Mr Taylor, because it was able to sell its fund management arm BGI to Blackrock for £8.2bn in 2009. He states that Mr Diamond and other managers were reported to been paid out on the deal with Mr Diamond said to have collected £26m.
Mr Taylor said: "If true, this – more than anything else perhaps – shows how far we have fallen, and how far we need to climb back."