In a paper prepared for the Bank of International Settlement, Sir John - now the head of the Independent Commission on Banking (ICB) - suggested that HBOS should have instead been taken into state ownership two years ago.
"It would appear to have been a mistake to waive normal merger law to address the HBOS problem once it was clear," he explained. "Relaxation of competition law was not a good way to help financial stability in this case."
The one-time president of the Institute for Fiscal Studies also singled out Lloyds' subsequent troubles as evidence that the merger of the two banks had failed to prevent instability.
Speaking at a meeting in Leeds earlier this month, fellow ICB member Clare Spottiswoode suggested that the panel may seek to reverse the union between Lloyds and HBOS as part of its ongoing probe into the British financial sector.
By Gary Cooper