A financial elite in disarray
Following Newsnight's exclusive interview last night, with HBOS whistleblower Paul Moore, the deputy chairman of the Financial Services Authority has resigned. Sir James Crosby was the man who built HBOS, from the merger of Halifax and the Bank of Scotland, leaving it to the stewardship of Andy Hornby in 2006. In 2008 it collapsed and had to be part-nationalised.
I must admit to being stunned that the revelations from Mr Moore, made under parliamentary privilege, have led to this. Here is why. Last October I broadcast the substantive revelations of Paul Moore in a BBC2 Money Programme Special: HBOS - Breaking the Bank. Since then both HBOS, and the FSA have known the essential focus of the allegations:
- that Paul Moore was sacked by because he had raised problems with the bank's culture when it came to regulatory risk under Crosby
- that the decision to change his job description, and then employ somebody else to do the job was said Crosby "mine and mine alone"
What puzzles me is why the simple revelation in public of Sir James' alleged role in the sacking should prompt his resignation. It must have been on the radar of the government and FSA for months - so why does the publication make a difference?
The FSA is in the middle of a massive re-examination of its role and past performance under its new boss Adair Turner. Sir James clearly believed that staying on would damage the FSA, either reputationally or hamper it practically: that is the import of his statement. But it goes to the heart of the problem: the FSA, many in the finance industry believe, was "captured" by the banks it was supposed to regulate.
Lord Turner up to now has tried to address this issue in two ways: a strictly limited inquiry into the handling of Northern Rock, which found mistakes and a wider theoretical rethink of the role of regulators, national and global. What he has resisted - and what is repeatedy resisted by the FSA's press spokespeople - is any systematic "revisiting" of the past. This, I believe will now have to happen.
There is no suggestion of individual culpability: it is clear however that the FSA, which has the responsibility to maintain financial stability, failed. Its key executives and board members are political appointees. Gordon Brown, as chancellor, appointed Sir James - the man whose strategy of rapid growth laid the basis for the collapse of HBOS.
So this is not about Crosby. Or the four bank execs who said sorry. And the question of who is right or wrong in the claim and counterclaim between Paul Moore and HBOS is secondary to a bigger issue. There was systemic failure and the role of the regulator is now right in the spotlight. How can you have a policing body overseen by those who are to be policed? How can you have the deputy chairman of the FSA being the same person who designed the strategy that, arguably, crashed a major bank?
This is the essential conundrum of UK financial regulation. I said last night: the whole financial elite is now in disarray. However strongly you feel about their role in the crash, we need that financial elite to recover its array pretty quickly and come up with a story about how the regulation of British banking is to be put right. And a plan.
* Watch Newsnight's special tonight on the state of Britain's jobs market, 2230 GMT. We will be covering the latest in the Crosby case at the top of the programme.