Supervisory chief defends Bank over BCCI collapse

Peter Cooke, a former Bank of England head of banking supervision, argued yesterday that "overzealous" regulation of the fraud-ridden bank BCCI and other banks would have damaged London's standing as a major financial centre.

As the trial resumed after the summer break, Mr Cooke took the witness stand to defend the Bank against the charge of "misfeasance" in the $850m (£478m) lawsuit brought by Deloitte, the liquidators of Bank of Credit and Commerce International. Nicknamed the Bank of Cocaine and Criminals International, the bank collapsed in 1991 with debts of more than £10bn.

The liquidators claim 22 Bank officials, including Mr Cooke, knew BCCI was a in a bad state long before its crash in 1991 and failed to take steps to prevent what has been described as the largest banking collapse in modern history. They also claim the Bank knew it should never have granted a licence to BCCI in 1980.

Mr Cooke, 73, was head of banking supervision at the Bank between 1976 and 1985. In a written statement to London's High Court, he said: "It is absurd to suggest that we were licensing an institution that we thought would cause loss to depositors."

He admitted he was aware that some of the supervisors in Luxembourg, where BCCI was incorporated even though it was run from London, felt they sometimes had difficulties in supervising BCCI. But he rejected the suggestion that the Bank should therefore not have licensed BCCI. "Had we applied such a basis of assessment consistently to all foreign institutions, it might have led to the Bank refusing licences to numerous ... long-established institutions with considerable damage to London's standing as a financial centre." Mr Cooke argued the Bank's approach was "regulation, not strangulation".

Mr Cooke also said Hasan Abedi, who ran BCCI, had a tendency to be "somewhat ingratiating and unctuous". That led him to characterise Mr Abedi as "the personification of Uriah Heep" - referring to the fraudster in the Charles Dickens novelDavid Copperfield - in a note to the Bank's Governor in 1978. But he added that he "never thought that he was dishonest", and later described him and his colleagues as "effective and competent bankers".

Asked in court about the levels of integrity within the banking supervision department, Mr Cooke said: "I had absolute confidence in all of them."

Mr Cooke is the second Bank witness to testify, after Brian Quinn, now the chairman of Celtic Football Club, who succeeded him as head of the supervisory department. Mr Cooke is being cross-examined by Gordon Pollock, the counsel acting for the liquidators, for up to three months. The liquidators also want to questionother junior Bank officials, who criticised the supervision of BCCI in the 1980s.