Sir James Crosby, the former boss of HBOS, has asked for his knighthood to be revoked after a scathing report by MPs found that he sowed the "seeds of destruction" at one of Britain's biggest banks.

Crosby was chief executive of HBOS until 2006, but was described as the architect of a strategy that just two years later led to the bank having to be rescued by Lloyds and eventually bailed out with £20bn of taxpayers' money.

He said he was "deeply sorry" for his role in HBOS's failure and asked for his knighthood to be removed. He is believed to be the first person to have voluntarily offered to hand back a knighthood. The 57-year-old chose to give up the honour, granted in 2006, rather than face the prospect of being stripped of it – as Fred Goodwin, the former boss of RBS was last year.

Crosby also offered to hand back 30% of his £580,000-a-year pension. He will still collect £406,000 annually in pension payments – 80 times as much as the average private sector worker. On Tuesday he also quit his £125,000-a-year role on the board of catering company Compass.

Attention is now likely to turn to his successor at HBOS, Andy Hornby, and the chairman, crossbench peer Lord Stevenson, who were also blamed in the damning report.

Liberal Democrat peer Lord Oakeshott said: "James Crosby has done the right thing. Clearly it's not sustainable for Andy Hornby not to follow."

Crosby's decision came hours after David Cameron refused to intervene when MPs from all three main political parties called for action.

The former banker, who is sitting on a pension pot worth more than £20m, said he had "never sought to dissociate" himself from HBOS's near-failure and its bailout by taxpayers.

"Shortly after I left HBOS, I received the enormous honour of a knighthood in recognition of my own – and many other people's –contribution to the creation of a company which was then widely regarded as a great success," he said.

"In view of what has happened subsequently to HBOS, I believe that it is right that I should now ask the appropriate authorities to take the necessary steps for its removal."

The Parliamentary Commission on Banking Standards report, published on Friday, had described him as the "architect of the strategy that set the course for disaster".

The MPs blamed Crosby for putting in place "a culture of perilously high–risk lending" with a lack of controls that "may have given rise to an accident waiting to happen".

Crosby said the report, which described his misjudgments as "toxic", made for "very chastening reading".

The honours forfeiture committee, chaired by the head of the civil service Sir Bob Kerslake, will meet to discuss Crosby's request for his knighthood to be revoked. A spokesman for the Cabinet Office said although it is believed to be the first time anyone has asked to have their knighthood revoked, Crosby's request does not preclude the committee formally stripping him of the title if it is told to consider doing so – as happened with Goodwin.

Paul Moore, the HBOS whistleblower fired by Crosby in 2004 for warning that the bank's growth was "a serious risk to financial stability and consumer protection", welcomed his former boss's decision but said Crosby should "specify what he did wrong" and "be an example to everyone".

He also called on Hornby and Stevenson to "examine their consciences" as "32,000 people lost their jobs as a result of the merger between HBOS and Lloyds. That's a lot of people".

Pat McFadden MP, a member of the banking commission, said it was "some belated recognition on Sir James Crosby's part of his leading role in a very irresponsible and ultimately calamitous strategy for this bank".

John Mann, a Labour MP on the Treasury select committee, said he "applauded Crosby's contrition".

"At last we have a banker not in denial," he said. "There are lots of people in banking who are in deep denial about their responsibilities. This is a refreshing change.

"Giving up his knighthood is well beyond anything anyone else has done in banking. I have been very critical of him and his judgment, but I applaud him for this."

He said he hoped Crosby's actions would "set a benchmark" for other bankers who helped plunge the country into the 2008 economic crisis. Mann also welcomed Crosby's decision to forgo some of his pension, but pointed out that "he's still hardly going to go starving".

Crosby said the 30% of his pension he was waiving – worth £174,000 a year – would go to "good causes, or benefit shareholders, with the pension scheme's employer and trustees".

Crosby sold two-thirds of his HBOS shares after leaving the bank but before its near collapse. It is not known exactly how much money he made from cashing in the shares.

He earned nearly £8m while chief executive of the bank, which he helped create with the merger of Halifax and Bank of Scotland.

Crosby will also stand down from his role as a trustee of Cancer Research UK. On Friday, he resigned from his role as an adviser to private equity firm Bridgepoint Capital.

The parliamentary report called for Crosby, Hornby and Stevenson to be banned from working in banking after their "self-delusion" led the bank to require a £28bn rescue from the government and Lloyds Banking Group.

Hornby, who took over as CEO of HBOS in 2006 and is now chief executive of betting firm Coral, received a pension pot worth £240,000 when he resigned in 2009.