The bank was the victim of rumours suggesting that it was experiencing a funding crisis, seeing its share price plunge last Wednesday by as much as 20 per cent.
However, HBOS has rapidly bounced back and its share price has leapt by more than 14 per cent in early morning trading after it was announced that the lender's chief executive, directors and managers had purchased 1.4 million shares.
The UK stock market has also rallied in recent days, with shares in Barclays and Royal Bank of Scotland also registering significant increases.
A surge in European bank shares and by their US counterparts has improved investor confidence in the sector.
The Bank of England held talks with Britain's leading banks last Thursday in order to address concerns about lending markets and liquidity in the aftermath of the US credit crunch.