Len Wardle, the long-standing chairman of the Cooperative Group, has resigned with immediate effect after he admitted "serious questions" were raised by the drugs scandal over former banking chairman Paul Flowers.
Mr Wardle, who has held the position since 2007, announced last month that he was due to leave next May but he said it was now right for him to go straight away, having led the board that appointed Mr Flowers.
Mr Flowers, a Methodist minister who chaired the Co-operative Bank for three years from 2010, was exposed allegedly buying and using illegal drugs in a newspaper sting at the weekend.
Mr Wardle said: "The recent revelations about the behaviour of Paul Flowers, the former chair of the Co-operative Bank, have raised a number of serious questions for both the bank and the group.
"I led the board that appointed Paul Flowers to lead the bank board and under those circumstances I feel that it is right that I step down now, ahead of my planned retirement in May next year.
"I have already made it clear that I believe the time is right for real change in our operations and our governance and the board recently started a detailed review of our democracy.
The supermarkets-to-funerals group last night launched a fact-finding probe about into "any inappropriate behaviour" and a "root-and-branch" review of its structure in the wake of the revelations about Mr Flowers.
Critics have questioned how he could have been appointed given his apparent lack of experience, and Andrew Tyrie, chairman of the Treasury Select Committee, said that, even before the weekend's revelations, it was clear he was "manifestly unsuitable".
The Co-operative Bank is facing a rescue plan which will see majority control turned over to investors including US hedge funds, after it was left with a £1.5 billion gap in its finances following the takeover of the Britannia Building Society in 2009.
Mr Flowers, a former Bradford councillor, now faces a police investigation. He has apologised over the scandal and been suspended by the Methodist Church as well as the Labour Party.
Mr Wardle's departure will see him replaced by his deputy, Ursula Lidbetter, chief executive of the Lincolnshire Co-operative.
The Co-operative Group said: "It is intended that Ursula will chair the group through the current governance review, which will include consideration of how the board is constituted and chaired."
The group, which employs 100,000 people, plunged to £559 million losses in the first half of the year, weighed down by its banking arm.
In July, it appointed former Treasury mandarin Sir Christopher Kelly to head an independent investigation into what went wrong at the bank. He will report back at the mutual's annual meeting next May.
The fate of the bank has been described as a "tragedy" by former group chief executive Peter Marks.
Mr Tyrie, who heads the Parliamentary Commission on Banking Standards, said regulatory supervision of it had been a "complete disaster".
He has said that the latest episode, involving Mr Flowers, shows the need to implement regulatory reform for top bankers as recommended by the commission.
It called for the approved persons regime (APR) to be scrapped and replaced. Mr Tyrie said APR had "degenerated into little more than a bureaucratic box-ticking exercise".
He argues that, instead, there needs to be continuing and "intrusive" supervision of banking bosses.
Regulators have said that Mr Flowers went through the appropriate process when he joined the Co-op's board as non-executive director. But he did not face further scrutiny when he became the bank's chairman.