Chief of the Co-operative Group, Paul Flowers, resigned on Tuesday as allegations rose that he used illegal drugs.
The former Co-op chief is a Methodist preacher and was recently caught caught on film allegedly arranging to buy cocaine and crystal meth.
This scandal raised questions over governance standards and the ethical credentials of the mutually owned group. His behavior prompted calls for an inquiry into how he had been appointed chairman of a bank.
Prime minister David Cameron announced that chancellor George Osborne was in discussions with financial regulators over what form the inquiry should take.
Group chairman Len Wardle has now resigned after the ailing bank had to be bailed out by hedge funds after getting into financial difficulties.
Wardle will be replaced by Ursula Lidbetter,Co-Op'a deputy chair and chief executive of the Lincolnshire Co-operative Society. Lidbetter will lead the group through a review prompted by the Flowers scandal.
Flowers, dubbed the "Crystal Methodist" by British tabloids, issued a statement last week saying he was seeking professional help. He has since been suspended from his religious duties.
