Brown Defends Handling Of Crosby Case

Crosby resigned on Wednesday after a former HBOS employee said his warnings the bank was growing too fast were ignored.

Prime Minister Gordon Brown on Thursday defended his appointment of a leading financial regulator forced to step down after he was accused of ignoring risk warnings.

James Crosby, the former chief executive of British bank HBOS, resigned as deputy chairman of the Financial Services Authority (FSA) on Wednesday after a former HBOS employee said his warnings the bank was growing too fast were ignored.

The Conservatives said Brown's appointment of Crosby to the FSA was a serious error of judgment and also highlighted the fact that he had been advising the government on the mortgage market as recently as last November.

Crosby's resignation came on a dire day for Brown when unemployment rose to 1.97 million and the Bank of England said the economy was in deep recession.

Speaking to a session of senior MPs, Brown said he had appointed Crosby to the board of the FSA in 2003 when he was finance minister on the recommendation of a committee.

Brown also said he was unaware that the FSA had already discussed concerns with HBOS over its risk profile.

"They (the committee members) said he was an outstanding individual with a strong intellect. That was the recommendation that was made to me in 2003," Brown said.

"I believe that the right decisons were taken. Of course in retrospect we now know that HBOS had what was in the end a problem with its business model," he added.

Crosby joined the board of the FSA when he was still chief executive of HBOS. He left HBOS in 2006 and was appointed deputy chairman of the FSA the following year.

Crosby's resignation follows accusations by Paul Moore, former head of regulatory risk at HBOS, that his warnings were ignored and led to his sacking.

Moore also said he had raised his concerns with the FSA, but "they did nothing either".

The FSA issued a rare and robust statement defending its supervision of HBOS and said Moore's allegations were "taken seriously, and were properly and professionally investigated."

HBOS has now become part of Lloyds Banking Group after a government-brokered merger last year which left the state with a 43 percent stake in the group.

Brown said HBOS was brought down by a flawed business plan rather than regulatory failings.

"And I have to say that the reason that HBOS fell was not because of these specific allegations and the result of them -- the reason it fell was because its business model, its whole business model, was wrong," he added.