Gordon Brown yesterday praised Sir James Crosby's decision to step down as deputy chairman of the Financial Services Authority. But what the country needs from Mr Brown is not an appreciation of Sir James's decision to resign, but an explanation of what this man was doing at the FSA in the first place.
The Prime Minister should also explain why he saw fit to consult Sir James, with such apparent regularity, on economic matters.
Sir James, a chief executive of HBOS, was appointed to the regulator by Mr Brown in 2004, when the Prime Minister was still at the Treasury. Even then, the decision smacked of putting a fox in charge of the chicken coup.
This week's revelation that Sir James, while head of HBOS, dismissed a risk analyst who had raised concerns about the bank's lending practices, makes that appointment look spectacularly misjudged.
Sir James was knighted in 2006 for services to the financial sector. HBOS's spectacular collapse last year suggests that British banking could have done without the type of "service" Sir James was providing. The manner of his resignation yesterday is also likely to do little to bolster the esteem in which those in public life are held. In his departing statement, Sir James refused to admit that he had done anything wrong in his seven years as HBOS chief executive. But, if he had done nothing wrong, why was he leaving the FSA? Like the expressions of regret from the former heads of the Royal Bank of Scotland and HBOS before the TreasurySelect Committee on Tuesday, Sir James's behaviour hardly represents a principled acceptance of responsibility.
But the repercussions of yesterday's resignation go significantly further. What does it say about the Prime Minister's judgement that he not only appointed Sir James to the FSA, but also commissioned two high-profile policy reports from him? The disappearance of Sir James's advice from the corridors of power will certainly be no great loss to the country. His report supporting the introduction of ID cards last March was styled an independent analysis, but it argued precisely what the Government wanted. Just as disappointing was his report in November recommending state intervention to resurrect the mortgage securitisation market. This, Sir James argued, would support new lending to the housing market and, in turn, help the banks to recover.
Ministers have a responsibility to use fiscal measures to ease the severity of this recession and ensure that businesses are not starved of the credit they need to function. But it is not the job of the Government to stop the housingmarket correction taking place. Houses were significantly overvalued in the boom and their prices need to descend to more normal levels. There is nothing to be gained from interfering with this process.
Sir James was also misguided in suggesting that facilitating the creation of more opaque fixed-interest securities is appropriate. The Government is still working out how to deal with the existing toxic securities on the balance sheets of Britain's banks. The last thing it ought to be doing is helping to create more of them.
As regards the banking crisis, Sir James was manifestly part of the problem, not the solution. It is a relief that he has departed. But the Government now needs to make it clear that his discredited approach has departed with him.Reuse content