Bankers say sorry as regulator is accused over role in crisis
Feb 11 2009 by Daniel Bentley and Joe Churcher, The Journal
THE Government was facing demands for an inquiry last night into the role played by one of the top City regulators in the collapse of HBOS.
The calls followed claims that Sir James Crosby, now the deputy chairman of the Financial Services Authority (FSA), sacked the bank’s group head of regulatory risk when he was HBOS chief executive.
In written evidence to the Commons Treasury Committee, Paul Moore said that he was fired in 2005 after warning that the bank was “going too fast”.
Michael Fallon, the senior Tory on the committee, said if the claims were true, the position of Sir James, who has also advised the Government on reform of the mortgage market, was “untenable”.
“These allegations are very serious. They go to the heart of how the banks grew so rapidly and they need to be answered,” he said last night.
“If they turn out to be true, then Sir James Crosby’s position as one of the most senior regulators in the country, and, indeed, an adviser to the Prime Minister, will become untenable.” Shadow chancellor George Osborne said it was now up to the Government to establish whether Mr Moore’s allegations were correct but Downing Street refused to be drawn on the claims.
A spokesman said: “Sir James Crosby is not a member of the Government. He is somebody who has completed a review for the Government.”
In a written statement to the committee, Mr Moore insisted the current crisis could have been avoided if there had been adequate systems to hold bank chiefs in check.
“When I was head of group regulatory risk at HBOS, I certainly knew that the bank was going too fast (and told them), had a cultural indisposition to challenge (and told them) and was a serious risk to financial stability (what the FSA call ‘maintaining market confidence’) and consumer protection (and told them).
“I told the board they ought to slow down but was prevented from having this properly minuted by the chief financial officer. I told them that their sales culture was significantly out of balance with their systems and controls.”
Sir James, who was made FSA deputy chairman in 2004, left HBOS in 2006.
Earlier his successor at HBOS and the former bosses of the Royal Bank of Scotland (RBS), expressed their “profound” apologies for their part in the crisis.
At their highly-anticipated encounter with the Treasury Committee, the former chiefs admitted they had misjudged the extent of the financial turmoil that engulfed both banks.
The meeting was swiftly followed by the news from RBS that the bank was to cut 2,300 jobs – about 2% of its 106,000 UK workforce. Both banks collapsed after the credit crunch and were bailed out in the £37bn taxpayer-funded rescue.
Sir Fred Goodwin, former chief executive of RBS, which is now 68% owned by taxpayers, apologised for “all of the distress that has been caused”.
Sir Fred and former RBS chairman Sir Tom McKillop faced accusations of “destroying a great British bank and costing the taxpayer £20bn” thanks largely to their decision to buy Dutch rival ABN Amro in 2007 at the peak of the market.
The pair admitted the £50bn RBS-led takeover was “a bad mistake” and was now virtually worthless.
Despite the apologies, all the former bosses vdefended their actions.
Former HBOS chief executive Andy Hornby said that while he was “extremely sorry for the turn of events” that led to HBOS’s rescue takeover by Lloyds TSB and Government bailout, he was “not personally culpable” for the crisis.
Sir Fred said it was “just too simple” to blame it all on him.
He denied RBS had ignored warnings from the Bank of England and the FSA.
“There was a definite mood that the economy in this country and generally was going to slow down, that the financial markets were going to slow down, but at no point did anyone get the scale or the speed of this, and that was what was so damaging about this slowdown,” he said.
