We are sorry say bankers 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."