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The prospect of Sir Win Bischoff being lined up to take over as chairman of Lloyds Banking Group is hardly inspiring. But UK Financial Investments, owner of a 43 per cent stake, has struggled to find more compelling candidates than the man who struggled to lead Citigroup out of one of the darkest chapters of its history. It is not hard to see why. The first job of the new chairman, if he is to have any credibility with stakeholders other than the desperate politicians who brokered Lloyds TSB’s disastrous takeover of HBOS, should be to sack his chief executive, Eric Daniels.

True, Sir Victor Blank, in stepping down from the chairmanship, has already made the final sacrifice. But that is not enough. The status quo, which allows Mr Daniels to escape his share of responsibility for the damage done to Lloyds, once a paragon of conservatism, is explicable only in so far as it saves the government the embarrassment of recognising the extent to which it bungled the collapse of HBOS last autumn. The new chairman, whether Sir Win or someone else, must find the courage to tell Mr Daniels’ supporters in Downing Street and UKFI that they must now cut him loose.

Mr Daniels bought HBOS with inadequate due diligence, failing to spot the dangers lurking in its books and placing excessive faith in the government’s promise of a waiver of competition rules.

His hope that the megabank’s market position – 30 per cent of current accounts, for example – will, one day, deliver supernormal returns may now be thwarted by Neelie Kroes. The European Union’s competition commissioner wants to break up outsized banks gorging on government capital and guaranteed funding.

Gordon Brown should never have promised the competition waiver. Mr Daniels should never have believed the prime minister could deliver it.

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