* David Walker, Bill Knight to oversee RBS report
* Independent review to also probe if FSA "asleep at wheel"
* Report expected in months, not years - Tyrie
(Rewrites first paragraph, adds Tyrie interview, details, background)
By Kirstin Ridley and Sudip Kar-Gupta
LONDON, May 5 (Reuters) - Two senior corporate governance experts will scrutinise a delayed public account of the near-failure of Royal Bank of Scotland in a bid to ensure it is neither a whitewash nor stymied by legal rows.
The Treasury Select Committee (TSC) said on Thursday it and the Financial Services Authority (FSA) had appointed David Walker, commissioned two years ago to run an enquiry into bank corporate governance, and lawyer Bill Knight, head of the Financial Reporting Council, to review the regulator's report.
"We need to know the decisive mistakes which destroyed RBS, how they came to be made, whether the FSA was asleep at the wheel and whether we can have confidence that they are awake now," said Andrew Tyrie, chairman of the TSC, which is a group of senior British legislators.
The failure of RBS in 2008, the year after UK lender Northern Rock buckled under the first bank run in more than 150 years, was averted only by a 45 billion pound ($74 billion) taxpayer bailout and billions more spent in state-backed loans.
The report will assess the causes of RBS's failure, its risk controls and governance processes and will examine how the FSA regulated and supervised it. But Tyrie said it was also vital that independent experts oversaw the process.
"When it comes to something like this, the FSA themselves have readily understood that the public would look askance if they were left to mark their own prep (work)," he told Reuters.
Tyrie was one of the most outspoken critics of the FSA after the watchdog triggered outrage last December by closing an RBS probe without pursuing RBS executives, such as former boss Fred Goodwin, and initially refusing to offer a public account of its confidential probe before an embarrassing climbdown.
However the promised report -- originally scheduled by April -- has become mired in wrangling with lawyers worried it might spark further lawsuits against RBS or former senior executives, such as ex-investment banking head Johnny Cameron.
Tyrie said it should take months, not years, to publish the final report alongside the independent review, adding it might prompt the TSC to hold another public evidence session.
"These events were three years ago. If getting to the bottom of this ... takes another few months, I think it will be worth it," he said.
FROM ICON TO DISGRACE
Once a small Scottish retail bank, RBS staged a meteoric rise to global prominence over two decades with an increasingly aggressive expansion into wholesale banking that subsequently threatened to fell the entire UK financial system.
Under the helm of Goodwin, once dubbed a "megalomaniac" and whose authoritarian management style discouraged dissent among senior staff, RBS became a national icon -- before it became a national disgrace.
Dubbed "Fred the Shred" for his cost-cutting abilities, Goodwin was feted in 2002 for his abilities to integrate UK banking peer NatWest and was knighted in 2004 for services to banking, in an era of "light touch" regulation that celebrated financial innovation under former prime minister Gordon Brown.
But his tenure at the helm of RBS was brought to an ignominious end after RBS succeeded in its relentless and costly pursuit of ABN AMRO, only to find its Dutch peer's assets had been overly-aggressively valued -- just as the unfolding credit crisis sent valuations plummeting in late 2007 and 2008.
RBS, already struggling to secure financing for a ballooning leveraged finance and commercial real state lending business that was exposed to subprime mortgages, was forced to make UK corporate history with a 12 billion pound emergency cash call.
But with its shares in freefall, it was not enough.
In October 2008, increasingly wary corporate customers -- who had witnessed the collapse of Wall Street's Lehman Brothers under the weight of sub-prime U.S. mortgages a month earlier -- started pulling out deposits. As RBS stared into the financial abyss, investor confidence drained in British banks.
Brown, Bank of England Governor Mervyn King and former finance minister Alistair Darling scrambled to craft a rescue that involved a massive liquidity support exercise to prop up the entire industry.
The government was to take an 83 percent stake in RBS and Goodwin became one of the highest-profile banking failures of the credit crisis. But he was also one of the best paid, sent home initially with an annual pension of over 700,000 pounds -- before a public outcry forced him to slash it to 342,500 pounds. (Additional reporting by Steve Slater; Editing by David Holmes) ($1=.6103 Pound)