MPs are holding an inquiry into the collapse of the Co-op’s bid for 632 Lloyds Banking Group branches in April.
Lloyds is being forced to sell the branches under EU competition rules and chose the Co-op as the buyer but the deal feel through last month after the bank revealed major capital shortfalls.
At a TSC hearing last week, Lloyds chief executive Antonio Horta-Osorio admitted he knew about the black hole in December.
Speaking to Money Marketing, Conservative MP and TSC member Mark Garnier says: “There are questions to be asked about what the regulators were doing as they seemed to be asleep on the job. We will have to get the regulators in because how is it possible they did not pick up on this?
“We have learnt a huge amount about bank regulation and done an awful lot. How on earth with all of this reform going on and with new regulators did they miss something as basic as a £1.5bn black hole in Co-op’s balance sheet?”
Conservative MP and TSC member Brooks Newmark pushed for the TSC inquiry into the Co-op.
He says: “How much did the regulator know and if it knew something then why did it not do anything? If it did not know anything they why wasn’t it doing due diligence at the time? Those are the kind of questions I want to see answered.”
Banking consultant Merhdad Yousefi says: “Regulators never mentioned concerns over capital in the deal so it saved the regulator’s bacon when it did not go ahead.”
The PRA declined to comment.