Royal Bank of Scotland nearly collapsed in 2008 because of poor management decisions, inadequate regulation and a flawed supervisory system, a Financial Services Authority report says.
The FSA admits that its own supervision was "flawed" and "provided insufficient challenge" to RBS.
And it says RBS had too weak a capital position to proceed with the takeover of parts of the Dutch bank ABN Amro.
The £49bn purchase took place at the height of the financial crisis in 2007.
BBC business editor Robert Peston said: "The costs of the debacle have been enormous.
"Taxpayers had to rescue the bank by injecting £45.5bn into the bank - and are currently sitting on a loss of more than £25bn on this investment."
He added that "although the FSA concedes that the regulation and supervision of banks was 'deficient' and 'flawed', these shortcomings were not negligence".
RBS, which is now 83%-owned by the UK government, has cut 27,500 jobs since the beginning of the financial crisis.
The chairman of Royal Bank of Scotland, Sir Philip Hampton, admitted to our correspondent that it was "shocking" that the bank had to accept taxpayers' money in order to avoid failing.
He said the approach of RBS's previous management had been wrong, and huge changes had since been made.
"I think we've made enormous progress," he told the BBC.
He said the bank had restructured its finances "to get our financial platform where it should be, with strong capital and strong liquidity".
"And I think the culture of the bank, in terms of risk profiles, the businesses we are ready to do and not ready to do, again has undergone enormous change.
"We are not the finished article, we still need to make further changes, but I think this bank is very different now from what it was three or four years ago."
Last month RBS reported pre-tax profits of £2bn in the three months to 30 September, compared with a £1.6bn loss in the same period last year.
It warned of further job losses and said the global economic slowdown was delaying its recovery.
'Errors of judgement'
The FSA report also says that in future regulators should be given greater powers to block takeovers.
Directors of banks should also put less emphasis on profit and more on risk management.
FSA chairman Adair Turner said: "This report... describes the errors of judgement and execution made by RBS executive management which, in combination, resulted in RBS being one of the banks which failed amid the global crisis.
"These were decisions for whose commercial consequences the RBS executive and board were ultimately responsible.
"In addition, the report concludes that the FSA was too focused on conduct regulation at the time and its prudential supervision of major banks was inadequate."