U.K. Bank Regulator Resigns Amid Furor

Chairman Accused of Ignoring Warnings

LONDON, Feb. 11 -- A top British bank regulator abruptly quit his post Wednesday as British bankers faced a second day of harsh questioning by lawmakers.

James Crosby resigned as deputy chairman of the Financial Services Authority, the group that regulates Britain's financial services industry. He has also served as an adviser to Prime Minister Gordon Brown.

A whistleblower told lawmakers that while Crosby was chief executive of HBOS bank, he ignored warnings about the huge risks HBOS was taking. The bank has since needed a multibillion-dollar government bailout.

Crosby said he had done nothing wrong but felt that the "right course of action" was for him to step down to distance the regulating authority from controversy. His sudden resignation was seen as a sign of the level of public anger toward banks.

In testimony submitted to the parliamentary hearing, the former head of the risk division at HBOS, Paul Moore, said that he had told Crosby the bank was growing too rapidly but that anybody who spoke out was labeled a "troublemaker" and a "spoilsport."

Moore said that the "sales culture" was "out of control" and that being an internal risk manager "felt a bit like being a man in a rowing boat trying to slow down an oil tanker."

George Mudie, a member of Parliament, told the HBOS bankers at the hearing that he was disturbed that Moore had been ignored and then fired for sounding alarms, "when it turned out he was right and you were wrong."

The Financial Services Authority said in a statement that an independent inquiry had already looked at Moore's allegations and found no wrongdoing at HBOS. Others have suggested he was fired because of personality clashes.

In a sharp exchange on the floor of the House of Commons, opposition leader David Cameron accused Brown of a "serious error of judgment" in appointing Crosby, the former head of a bank that had nearly collapsed, to the regulatory agency.

Brown said that the allegations against Crosby were "serious but contested" and that they would be investigated.

Members of Parliament asked bankers to explain why the economy had gotten into such a mess and why they should have been paid so handsomely.

Many executives agreed that banks should reassess the way they award salaries and bonuses.

"It is important for us to be both receptive and sensitive to the spirit of the age as it relates to compensation at the moment," Barclays chief executive John Varley told lawmakers. "It is very clear to me that some aspects of it . . . in the past have not served either the industry or society well."

John Prescott, a former deputy prime minister, has organized a popular Facebook protest over bonus payments at the Royal Bank of Scotland, which is 68 percent taxpayer-owned. Bonuses had been agreed on before the government stepped in with a massive tax-funded bailout.

Stephen Hester, who has recently been installed as the new head of the Royal Bank of Scotland, was asked whether the government should have required the bank to stop bonus payments when it injected nearly $30 billion dollars in taxpayer funds into the bank.

"This is very difficult territory and it is right that it is a subject of public debate," Hester said. "I do think banking pay is way too high, and I intend to lead that process."

Ahead of the hearings Wednesday, the head of the Bank of England announced that Britain was in a "deep recession."