FSA deputy chairman resigns

LONDON - The deputy chairman of Britain's Financial Services Authority resigned Wednesday following allegations that as the former head of HBOS PLC he fired a manager who warned the bank was taking too many risks. The bank later needed a taxpayer-funded bailout.

James Crosby, who has also worked as an adviser to Prime Minister Gordon Brown's government alongside his role at the market regulator, said he was confident there was "no substance" in the allegations but resigned to protect the agency's reputation.

Crosby's departure followed claims by Paul Moore, the former head of regulatory risk at HBOS, that his warnings to executives including Crosby that the bank was growing too rapidly were dismissed and ultimately led to him being fired in 2005.

Prime Minister Gordon Brown said the allegations against Crosby, who resigned from HBOS in June 2006, were "serious but contested allegations ... that he will wish to defend."

"So it is right that he has stepped down as vice chairman of the Financial Services Authority," Brown told lawmakers during his weekly question and answer session.

Moore's allegations were detailed in written evidence to a cross-party Parliamentary committee which is investigating events leading to the near collapse of Britain's banking sector and the subsequent government rescue package.

"I told the board they ought to slow down but was prevented from having this properly minuted by the chief financial officer," Moore said in the written evidence submitted to the committee. "I told them that their sales culture was significantly out of balance with their systems and controls."

Moore also said that his concerns were ignored by the FSA.

Crosby acknowledged Wednesday that he asked Moore to resign from HBOS, but noted that similar allegations raised by Moore at the time were independently investigated by KPMG and found to have "no merit."

Crosby left HBOS in July 2006 after five years as the first chief executive of the merged Halifax and Bank of Scotland. He is also a senior independent director of ITV PLC and Compass Group PLC.

Brown played down Crosby's role as an adviser to his government, saying that he was asked to carry out two reports that have now been completed.

"He is no longer an economic adviser, and has only been so in the context of doing two reports," Brown told lawmakers, but said it was "right" the allegations be investigated.

The Treasury Select Committee's hearings into the banking crisis have garnered attention amid a public backlash over the perceived perks enjoyed by bankers, including hefty bonuses, at institutions that are now majority owned by taxpayers following the government's 37 billion pound rescue package in October.

Former RBS chairman Tom McKillop and chief executive Fred Goodwin and their HBOS counterparts Dennis Stevenson and Andy Hornby met growing pressure to present a penitent stance at a three-hour grilling on Tuesday, issuing "profound" apologies for their roles in the financial mess.

On Wednesday, current RBS chief executive, Stephen Hester, said there would be no bonuses this year at board level or for "anyone at all associated with losses we've made," but would not rule them out for staff altogether.

"I empathise 100 percent with the public mood," he said, but added that he needed to be able to retain key staff to ensure RBS' strength in the future.

The bank's defiant stance on bonuses has provoked a furious response across the political spectrum, with Brown vowing "aggressive" action to sweep away "the old short-term bonus culture." Opposition parties have demanded that ministers use their majority holding to block the payments.

Barclays PLC Chief Executive Officer John Varley said he understood why banks have become so hated by the public.

"If you look at the failure in the banking system over the last two years, it is clear that the banks have contributed to that failure and it is clear that part of that problem has been the issue of compensation," he said.

Hester and Varley appeared alongside fellow chief executives Eric Daniels of the part state-owned Lloyds Banking Group PLC, Antonio Horta-Osorio of Abbey Bank, and HSBC UK managing director Paul Thurston.

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