Sir James Crosby has resigned from his post as deputy chairman of the Financial Services Authority following claims that when he was chief executive of HBOS he ignored warnings that the bank was expanding too fast.
Paul Moore, former head of risk at HBOS, claims that he was fired by Sir James - who was chief executive from 2001 to 2006 – when he warned him that HBOS
was growing too quickly.
It is these claims that have questioned Sir James' advice in his capacity as FSA deputy chairman.
He has been one of the Prime Minister's most trusted advisers throughout the banking
crisis and Mr Moore's claims have cast doubt over his position as a Government adviser on the solutions to the very crisis that Mr Moore claims he could have done something to prevent.
Shadow chancellor George Osborne told the Times: "Given that, as Chancellor, Gordon Brown appointed Sir James as deputy chairman of the FSA and that as Prime Minister he relies upon him as a key economic adviser, the Government need urgently to investigate the allegations and discover the truth."
Despite the fact that Sir James says he is "totally confident that there is no substance to any of the allegations" made by Mr Moore, he said he still felt he needed to resign.
"I nonetheless feel that the right course of action for the FSA is for me to resign from the FSA Board which I do with immediate effect," he said.
Mr Moore, who was dismissed from his post as head of risk in 2004, yesterday told the Treasury select committee that Sir James had sacked him after he told the bank's board that its actions could "lead to disaster."
Mr Moore told MPs that he warned the HBOS board repeatedly that they were taking risks with financial stability and consumer protection, but claims he was ignored.
He accused the bank of "a total failure of all key aspects of corporate governance" and said that he was repeatedly rebuffed.
Speaking to the BBC he said: "I realised the bank was moving too fast and I raised those challenges very strongly at board level. I also raised issues of cultural indisposition to challenge and inappropriate behaviours, and ultimately I was sacked."
He also told the BBC that when it came to regulation, he felt it was not that the FSA did not have the authority or power to intervene, but that "they didn't implement them with sufficient rigour."
Mr Moore said that after suing for unfair dismissal, he received substantial damages but was unable to talk about the situation due to a gagging order; he claims he has decided to speak out now because it is in the public interest.
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