The deputy head of the country's financial watchdog resigned today after Gordon Brown withdrew confidence in him over damaging allegations from a bank whistle-blower.
Sir James Crosby, the former HBOS chief executive, stepped down from his role at the Financial Services Authority (FSA) after it was claimed that he personally dismissed his former head of risk who raised fears that the bank was growing too fast.
Sir James resigned minutes after the No 10 spokesman made it clear that Mr Brown he did not have full confidence in the banker.
"These are serious allegations but they are contested allegations," the spokesman said.
In his resignation statement, Sir James said that allegations by the whistle-blower, Paul Moore, had "no merit", a claim disputed by Mr Moore in a fresh statement this afternoon, but that he did not want to distract the FSA from its key roles.
"He [Mr Moore] made a series of allegations. These were independently and extensively investigated on behalf of the [HBOS] board, the results of which they shared with the FSA," Sir James said.
"That investigation concluded that Mr Moore’s allegations had no merit. Last autumn (on a BBC programme) and again yesterday at the Treasury Select Committee he repeated substantially the same allegations. HBOS has reiterated its view that his allegations have no merit."
Sir James, who was appointed to the FSA by the Prime Minister, also wrote two reports for the Government while working as an adviser to the Treasury.
Despite claiming that he was independent of government when he wrote the reports for Alistair Darling, the Chancellor, he added that he wanted to leave his post to allow the FSA to continue to work effectively while under "extreme pressure".
"As a non-executive director I have an absolute responsibility to ensure that I do not make their task any more difficult," Sir James said.
"Therefore, whilst I am totally confident that there is no substance to any of the allegations, I nonetheless feel that the right course of action for the FSA is for me to resign from the FSA board which I do with immediate effect.“
The explosive allegations that led to Sir James's resignation were made when four former banking chiefs were grilled before the Treasury Select Committee yesterday.
During the testimony, it was revealed that Mr Moore had said that his job at the time "felt a bit like being a man in a rowing boat trying to slow down an oil tanker".
Mr Moore, a former partner of KPMG who was head of group regulatory risk at HBOS between 2002 and 2005, accused the bank of "a total failure of all key aspects of corporate governance" and pointed the finger of blame firmly at Sir James, whom Mr Darling asked last April to review the problems in the mortgage market.
Mr Moore said that with his dismissal without good reason and replacement by a sales manager with less experience of risk management, Sir James had acted against HBOS rules and the wishes of other directors.
In a fresh statement today, Mr Moore said he stood "firmly and confidently" behind his claims, adding that he had a "significant body of detailed additional evidence" to back them up.
“I am not interested in blame, even though many people will think that this is what my agenda is," he said.
“People who know me will testify to this, but I have to say that I do find it sad that people in such important fiduciary positions find it so difficult to admit their mistakes and to say that they are sorry.
“Fighting to the bitter end is always worse for all concerned.”
The allegations came at a time when risk-taking by banks has come in for huge criticism as Britain slides into recession.
In a bitter House of Commons exchange this lunchtime, the Prime Minister said that Sir James's resignation was the right step to take if he wished to defend himself against the allegations.
"It is right that we investigate serious allegations that are made about the banking system. These are serious but contested allegations," he said.
"In relation to Sir James Crosby, these are allegations that he will wish to defend, so it is right that he has stepped down as vice-chairman of the Financial Services Authority."
David Cameron, the Conservative leader, suggested that Mr Brown admit that he had shown an error of judgment in appointing Sir James as deputy chairman of the FSA and asking him to write reports on the economy for the Government.
In one of the reports, on mortgage finance, Sir James called for government intervention to stimulate the housing markets.
He said there was a strong case for the auction of guarantees “with the explicit objective of containing the impact of the financial turmoil on consumers and the wider economy”.
Mr Cameron said: "Let’s be clear about what has happened. In the last half-hour Sir James, the man who ran HBOS and who the Prime Minister singled out to regulate our banks and advise the Government, has resigned over allegations that he sacked the whistle-blower who knew his bank was taking unacceptable risks.
"Do you accept it was a serious error of judgment on your part to appoint him in the first place?"
Mr Brown reiterated a point made by Sir James, in his resignation letter, that allegations brought before the Treasury Select Committee were independently investigated by KPMG in 2005.
The Tory leader, however, hit back: "Sir James Crosby has had the decency to resign. Why can’t the Prime Minister have the decency to admit he has got something wrong?"
SOURCE:THE TIMES
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