Co-op failed investors, MP claims Mr Bailey also revealed to the TSC that the regulator had warned Co-op Bank two years ago it needed to strengthen its loss-absorbing capital buffers. He added that it had never approved its failed bid to buy 632 bank branches from Lloyds Banking Group - so-called "Project Verde." The Co-op withdrew its offer in April after it was found to have a capital shortfall. Mr Bailey insisted that Lloyds had been informed by the Co-op of the shortfall in 2011, which conflicted with the state-backed bank's claim last month that it only learned of the capital gap in December last year. Andrew Tyrie, TSC chairman, said: "The committee will want to look at whether the regulator's message got through, how it was conveyed and what, if any, action was taken as a result." Mr Bailey also confirmed that Verde would have effectively been a lifeboat for the Co-op. Verde would have brought capital, management and IT systems. All three would have been of benefit to the Co-op," he said. Although Verde would not have brought enough capital it was a start, he added. It was not clear to us that the Coop Bank had the ability to transform itself successfully and sustainably into an organisation on a scale that would result from acquiring the Verde assets. That was at the tail-end of 2011," Mr Bailey said. Lloyds was informed, but chose to press ahead with Co-op rather than seek a deal with rival bidder NBNK. Details of the Co-op's problems emerged as the regulators attempted to head off a row over demands for Barclays and Nationwide to raise more capital. Both have fallen foul of a controversial demand to hit a 3pc "leverage ratio" earlier than the current target of 2018. Mr Tucker said: "For two institutions, [the regulator] concluded that leverage was currently and prospectively too high for safety." Hinting that the two lenders could be expected to meet the requirements by some point next year, Mr Bailey said there was "a logic" for the timing to replicate the regulators" demands on capital ratios. However, he added: "The best way to do this is to see the plans before we set the date." Last week, Barclays chief executive Antony Jenkins said the bank may reduce lending relative to current plans to meet the rule. Mr Tucker also raised concerns about the Government's flagship Help-to-Buy cheap mortgage scheme. Comparing it to the US system of subsidised house lending supported by Fannie Mae and Freddie Mac, he said: "I do believe that Fannie helped get the US out of the 1930s but I'm absolutely sure that that structure helped brew the bubble that blew up the world in 2007, 2008. This is not a market that needs a permanent subsidy. Turning to the market's recent reaction to the US Federal Reserve's indication that it would soon start winding down its stimulus programme, Mr Tucker said it showed that the financial system "was getting over excited" and that it was a "warning shot" on the difficulties of exiting quantitative easing. Government borrowing costs have shot up in the wake of the market turmoil, with the UK selling £3.5bn of 10-year bonds at average interest rate of 2.58pc yesterday - the highest rate since September 2011.