Lloyds Banking Group faces substantial losses after taking over HBOS
The Scottish businessman who led a bid for HBOS before it was merged with Lloyds TSB has called for a legal inquiry into the banking system.
Jim Spowart said recent events raised serious questions about the banking sector, particularly in Scotland.
It comes after the chancellor moved to dampen speculation that the Lloyds Banking Group could be nationalised.
The organisation has said that it expects its subsidiary to make record losses of nearly £11bn.
Shares in Lloyds Banking Group, which is 43% owned by the taxpayer, closed down 32.5% at the end of last week.
I do think we really need now, given all the revelations of last week, to call for something like a judicial inquiry into what's actually going on
Jim Spowart Businessman
Chancellor Alistair Darling said that allowing HBOS to collapse would have had knock-on effects for all of Britain's banks.
The chancellor refused to rule out nationalisation of Lloyds but insisted a range of options remained open to help the banking sector.
He later moved to stress that "properly regulated and supervised" banks were best run on a commercial basis.
Mr Spowart, who set up HBOS's Intelligent Finance online division, told BBC Scotland's Politics Show shareholders should still be worried about nationalisation.
But he said: "If I was a shareholder I would be shocked by the news coming out in the last few days that [nationalisation] is now a possibility and very much on the cards.
"I do think we really need now, given all the revelations of last week, to call for something like a judicial inquiry into what's actually going on with our banks, particularly in Scotland."
Alistair Darling comments on the HBOS losses
Mr Spowart said he wanted to see a "forensic examination" of how HBOS was managed.
Independent MSP Margo Macdonald has also said she fears the superbank created by the Lloyds TSB/HBoS merger is too big.
Sir Peter Burt was chief executive of the Bank of Scotland when it merged with the Halifax and launched a bid to prevent the Lloyds merger.
He told BBC Radio Scotland's The Business programme that while he was not surprised by the projected losses, nationalisation was not a serious prospect.
He said: "I think it was a very good acquisition, there will be some bumps in the road but it put Lloyds in a very strong position."
Sir Peter also rejected the concept of a judicial inquiry into the running of HBOS.
Scottish Secretary Jim Murphy said he thought the current parliamentary inquiries into the banking crisis were the right way forward.
We know that the money would have been better used to fully nationalise HBOS and leave Lloyds fully in the private sector
Tavish Scott Scottish Lib Dem leader
He said: "The Treasury select committee chaired by John McFall and now the Scottish affairs select committee chaired by Mohammad Sarwar are going to have their own inquiry into some aspects of the HBOS, RBS arrangements - I think that's the right way to progress."
But Deputy First Minister Nicola Sturgeon said she felt there was a need for a wider investigation.
She said: "As we learn more about this I do think there may well be a case for a further inquiry, there are some big questions to be answered about the practices of the banks, about the regulators and also frankly about the role of politicians."
Scottish Lib Dem leader Tavish Scott has written to the chancellor to invite him and the prime minister to explain why they "steam-rollered" through Lloyds' takeover of HBOS.
In his letter, Mr Scott challenges the chancellor and prime minister: "There is broad consensus in the Scottish Parliament that there should be an inquiry into Scottish banking.
"I'm sure that MSPs would welcome you and the prime minister to explain why, as Scottish MPs, you drove through this takeover."
He calls the situation a "debacle". "We know that the money would have been better used to fully nationalise HBOS and leave Lloyds fully in the private sector," he claims.
Meanwhile, shadow business secretary Kenneth Clarke branded the merger a "disaster", especially for Lloyds TSB, and accused ministers of overseeing a "shotgun marriage" of the two banks.
"They should never have been allowed to merge," he added.
"Lloyds TSB was a boring bank, it was a steady bank, it hadn't done silly things."
Lloyds chief executive Eric Daniels insisted the company's longer-term prospects were brighter.
"Lloyds Banking Group has the largest UK financial services franchise, with excellent long-term earnings potential," he added.
This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.