UK regulator quits as top bankers appear at inquiry

A TOP British financial regulator accused of ignoring risk warnings quit yesterday as politicians grilled leading bankers over the integrity of the financial system and the size of their pay packets.

James Crosby, the former chief executive of British bank HBOS and adviser to British prime minister Gordon Brown, stepped down as deputy chairman of the Financial Services Authority, saying allegations he ignored risk warnings while at HBOS had already been investigated and had no merit.

“I am totally confident that there is no substance to any of the allegations,” said Mr Crosby.

Mr Brown tried to limit damage from Mr Crosby’s resignation, saying the former banker no longer advised the government having completed two reports on mortgages and security issues.

“These are serious but contested allegations. . . that he will wish to defend so it is right that he has stepped down,” Mr Brown told Britain’s lower house of parliament.

The resignation follows accusations by Paul Moore, former head of regulatory risk at HBOS, that his warnings the bank was growing too fast were ignored and resulted in his sacking.

Mr Crosby stepped down on the same day that banking chiefs faced an ongoing parliamentary inquiry into a crisis in which Britain has been forced to nationalise large parts of its banking system.

The bankers fended off robust questioning in which Treasury Select Committee chairman John McFall accused Spanish bank Santander, owner of Britain’s Abbey, of having an “utterly duff” due diligence process after its customers ended up with a €2.3 billion exposure to an alleged fraud by US financier Bernard Madoff.

Contrite bank bosses echoed apologies at a similar hearing on Tuesday when the former heads of Royal Bank of Scotland and HBOS apologised for the mistakes that brought two of Britain’s biggest banks close to collapse.

RBS’s new chief executive Stephen Hester said he empathised with public anger over taxpayer-funded bailouts and lavish bonuses for bankers.

“I do think banking pay in some areas of the industry is way too high and needs to come down,” he told the committee.

Mr Hester predicted it would take three to five years to stabilise RBS and bring it back to “standalone growth”.

“We obviously have a really huge job to do,” he said, adding that the damage done to Britain’s once mighty banking industry was a “source of enormous sadness and disappointment”.

Barclays chief executive John Varley said it was “perfectly understandable and reasonable” to conclude that banks were more to blame than any sector for the state of the British economy which is in recession. – (Reuters)