A FULL investigation is to be launched into the failure of Edinburgh-based lender Halifax Bank of Scotland.

The Financial Services Authority (FSA) has attracted the ire of MPs by refusing to look at the collapse of Northern Rock or Bradford & Bingley.

The HBOS probe will start once the City regulator has decided whether to take enforcement action against any key players in the period before the bank was swallowed by Lloyds in a rescue takeover.

The FSA, yet to produce a long-awaited report on the near-collapse of Royal Bank of Scotland (RBS) after its investigation, concluded no-one should face charges.

In a letter to the Treasury Committee, FSA chairman Lord Adair Turner said: “As with RBS, HBOS’s failure resulted in the need for significant public support.

“And HBOS’s role in the pre-crisis credit boom was a key element in the developments, which led to the financial crisis.

“There is therefore a public interest in knowing what happened at HBOS as well as at RBS.”

Previously fast-growing HBOS, headed by Andy Hornby, ran into problems in 2008 when investors pulled funding, concerned about mounting losses from its mortgage book and on large loans to the ailing property and retail sectors.

Its takeover by Lloyds TSB was controversial with those worried about the disappearance of a major Scottish institution.

Many Lloyds TSB shareholders were unhappy about being landed with a troubled loan book. The combined bank had to be supported with a £20 billion Government capital injection, leaving it 41% state-owned.

Lord Turner confirmed the FSA had launched an enforcement investigation at HBOS that could lead to charges against key staff.

“Once the investigation process is completed and the final result announced, however, we would intend to begin work on a report into HBOS, providing an account of the developments over the years preceding the crisis which put HBOS in an unsustainable position in autumn 2008,” he said.

Treasury Committee member Stewart Hosie told The Herald: “It is always very helpful to learn lessons when something like this has happened.”

The Dundee East MP added: “I think the disappointment the committee has is the way (the FSA) dismissed the opportunity to look again at Northern Rock and Bradford & Bingley, given the scale of the direct support they received.”