Economic experts have said that the shock trading statement is proof of just how lax underwriting was at some of the big banking institutions during the boom time. Speaking to the Times newspaper, Alex Potter, an analyst at Collins Stewart commented: “[It] highlights quite how bad underwriting standards clearly were within HBOS.”

The chief executive of Lloyds Banking Group, Eric Daniels, has blamed the soaring levels of bad debt on the dire economic climate, saying that falling house prices, growing unemployment and a drop in commercial property values has led to the rocketing rate of defaults.

Corporate loan losses at HBOS climbed to £7 billion last year, indicating that the writedowns for this year will be at least £11 billion. The bank has speculated that the losses will be in the region of £13.5 billion, although some analysts have put the figure as high as £20 billion.