The strength of banking group HBOS was questioned as early as 2002, a statement released today by the Financial Services Authority (FSA) has revealed.
The statement has been released in response to Sir James Crosby's resignation as deputy chairman of the FSA. Mr Crosby stepped down yesterday amid furore over his role in the downfall of HBOS
Sir James, formerly chief executive of HBOS, has been accused of firing Paul Moore, former head of risk at HBOS, on the basis that he raised concerns over the rapid growth of the banking giant's loan book.
The FSA statement confirms that these concerns were raised by Mr Moore in December 2004, and that the FSA
" target="_blank">FSA concluded that the changes made by HBOS in response were appropriate.
The statement also revealed that the regulator raised concerns about the security of failed bank HBOS as early as 2002, but that it believed sufficient action had been taken to address these concerns.
"The FSA confirms that the allegations made by Mr Moore were taken seriously, and were properly and professionally investigated." The statement concluded. "It should also be noted that the FSA's concerns about HBOS's risk management framework considerably pre-dated the allegations by Mr Moore."
Commenting on the resignation of Sir James, the BBC's business editor Robert Peston said yesterday: "Sir James chose to resign because he wanted to protect the FSA from incessant criticism by media and opposition politicians."
Mr Peston added that, although HBOS and consequently Mr Crosby made an error of judgement, they did not break any laws or regulations: "So the lesson of hindsight is that Sir James made a disastrous judgement about HBOS's rate of expansion – but not that he committed a crime or a misdemeanour."
Speaking of the impact that HBOS's consequent collapse has had on the UK and its economy, Mr Peston concluded:
"And some would say that it's right that he quit, because all of us are paying for his misjudgement with the massive financial support that taxpayers have been forced to give HBOS."
Following the resignation of Sir James Crosby, Prime Minister Gordon Brown is due to face questions this morning over his choice of Mr Crosby as a key Government adviser.
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