Regulators ordered Co-operative Bank to reveal its financial problems to Lloyds Banking Group in 2011, a year before the part-nationalised lender said it became aware of the issues, Bank of England deputy governor Andrew Bailey has claimed.
A deal for Co-op to buy 632 Lloyds branches, including the 185-strong Lloyds TSB Scotland estate, collapsed in April as Co-op Bank was forced to outline plans to plug an estimated £1.5 billion capital shortfall.
Mr Bailey told MPs: "Two years ago, when it [the purchase] was first an idea, I said to the board of the Co-operative Bank that they needed to raise capital."
He told the Treasury Select Committee he had also raised concerns about liquidity, risk management, integration, governance and management with the mutual.
He said: "I made it clear to them at that point, at the end of 2011, they had to make that clear to Lloyds."
But Lloyds executives told MPs last month that they only became aware of possible issues at Lloyds in late 2012 and only by analysing a business plan submitted as part of the bid process.
They also said the performance of Co-operative's debt in the market at that time did not suggest anything untoward.
Co-operative Group, run by Scot Euan Sutherland since May, did not dispute the timetable of events outlined by Mr Bailey and Lloyds.
A spokesman said: "The top team at both The Co-operative Group and the Co-operative Bank has been significantly strengthened.
"That new management team is firmly focused on putting in place our comprehensive and equitable solution to the bank's capital problems."
Tory MP and committee member Jesse Norman criticised Co-op Group for leaving the bank's bondholders bearing the brunt of its capital reorganisation that will see some of its shares listed on the stock market.
Co-operative Group is owned by its members including 475,000 in Scotland. Co-op Bank chief executive Barry Tootell stepped down in May as ratings agency Moody's downgraded its rating by six notches to junk status.
Treasury Committee chairman Andrew Tyrie said: "The committee will want to look at whether the regulator's message got through, how it was conveyed and what, if any, action was taken as a result."
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