Banks should need regulatory approval for significant acquisitions to avoid disasters like the 2008 collapse of Royal Bank of Scotland PLC, Britain’s financial regulator said in a wide-ranging report which faults itself as well as bank management and the government for the lender’s failure.

RBS led a takeover of Dutch bank ABN Amro in 2007, only to run into huge problems in 2008, when the global financial crisis caused a severe credit crunch. The merged group collapsed in 2008. Because of the takeover, taxpayers had to bail out the bank and now own 83 percent of its shares.

The report by the Financial Services Authority lays blame for the debacle on the bank’s management, the government’s “light touch” regulation and the hasty way in which RBS pursued its takeover.

RBS didn’t need regulatory approval for the acquisition, but the report by the FSA board said the agency could have used existing powers to thwart the takeover.

“There would be merit in making it a formal requirement that banks obtain regulatory approval for major acquisitions (relative to the size of the acquiring bank),” the report said.

The report said the FSA should have paid closer attention to what was the largest-ever multinational and contested banking acquisition from the moment RBS and its partners launched the bid in July 2007. However, the report said the FSA’s decision to stand back was reasonable in the context of the time.

“The FSA operated a flawed supervisory approach which failed adequately to challenge the judgment and risk assessments of the management of RBS,” said Adair Turner, the agency’s chairman. “This approach reflected widely held, but mistaken assumptions about the stability of financial systems and existed against a backdrop of political pressures for a light touch regulatory regime.”

The report says there were several poor decisions by RBS but it did not find any individual legally responsible for violating FSA rules.

“The crucial issue that this raises, however, is whether the rules are appropriate: whether the decisions and actions which led to failure should ideally have been sanctionable, and whether we should put in place different rules and standards for the future,” Turner said.

RBS made its takeover bid as leader of a consortium which included Banco Santander SA of Spain and Fortis NV of the Netherlands.

International standards imposed since the banking crash would have prevented RBS from bidding for ABN Amro and would have prevented RBS from paying dividends from 2005 onwards, the report said.

Laying some blame on the government, the report notes that Prime Minister Tony Blair had expressed concern in 2005 that the FSA’s supervision was heavy-handed. Callum McCarthy, then the FSA chairman, responded by writing to Blair, assuring him that the UK applied only a fraction of the resources which US agencies devoted to supervising major banks.

“The letter reflects the assumptions of the pre-crisis period,” Turner said.

Even if it hadn’t taken over ABN Amro, the report said RBS would have been vulnerable to the extreme stresses which led to the collapse of other financial institutions in the global financial crisis of 2008 and 2009.

RBS had the lowest capital ratio of the big U.K. banks in mid-2007, it depended heavily on short-term funding which dried up during the crisis, and a significant share of its losses came from assets it owned before taking on ABN Amro, the report said.

“Taxpayers should never have had to rescue RBS,” said current RBS chairman Philip Hampton. He noted, however, that the bank was ahead of its targets for restructing itself to return to private ownership.