'I was NOT warned about banks crisis': Brown denies he knew FSA had raised alarm about risk to HBOS

FSA warned HBOS in 2002 it was taking too many risks



Brown denies he or Treasury officials were ever told



He denies handpicking Sir James Crosby for FSA role

But Tories say the 'net is closing in' on him and Darling

Bailout chief announces plans to step down



Gordon Brown today denied he was aware banks were being warned as early as 2002 that they were running out of control.



The Prime Minister - who was then the Chancellor - insisted he was never told of the Financial Services Authority's concerns about risky practices at HBOS.

He also sought to distance himself from Sir James Crosby, the key Government adviser who stood down as deputy chairman of the FSA yesterday.

Mr Brown, in a grilling by senior MPs, denied he had hand-picked Sir James to be on the FSA board 2003 and said he was selected by an independent panel.



However, the Tories claimed the 'net is closing in' on him and Alistair Darling over the banking crisis and that their argument they knew nothing has been shattered.

The Government's handling of the economic crisis was in even more disarray as a key adviser announced his plans to step down.



Denial: Gordon Brown started off joking with the MPs but soon became angry when they were incredulous the Treasury was not told about fears for HBOS

American Glen Moreno was brought in to manage taxpayers' multi-billion pound interests in High Street lenders.

But the chairman of UK Financial Investments Ltd was until last April a trustee of a secretive Liechtenstein-based fund at the centre of a row over tax evasion.



Mr Darling stressed his appointment was only temporary today - prompting a Tory taunt that the Government was 'about to lose its second key banking adviser'.

The FSA last night revealed it had warned HBOS about its risk assessment back in 2002, well before whistleblower Paul Moore told bosses of his own fears.

But Mr Brown told the Commons Liaison Committee this morning that 'no information' was passed on to the Treasury because the discussions were considered routine.



'These were regarded as ordinary issues that were normally dealt with by the interaction between the FSA and HBOS,' he said.



Despite his denials, critics are now focusing on the close relationship between Sir James and Mr Brown as they attack his handling of the economy.



Gift: The Prime Minister signing a Mini in Downing Street. It will be sold to raise money for the British Forces Foundation and has already been signed by celebrities

It was under Mr Brown at the Treasury that the banker was elected to the board of the FSA in 2003 and he had been a key Government adviser for more than two years.

In 2007, he became deputy chairman of the watchdog - a position he resigned yesterday following allegations he sacked Mr Moore after he warned of a looming crisis at the bank.

The row has dragged the Prime Minister to the heart of the controversy over banks' behaviour and left Opposition MPs questioning his judgement.

Today, he insisted that he had not personally chosen Sir James to go onto the board of the FSA and that he had been picked by an independent panel.

The assessors had concluded he was a 'leading industry practitioner with broad experience' and an 'outstanding individual with a strong intellect', he told MPs.

He said he believed the 'right decisions' had been made but said that as chancellor at the time he 'took responsibility' for what happened.

The Prime Minister also dismissed the idea HBOS had failed because Mr Moore's warnings were not heeded and said 'its whole business model' had been wrong.

The FSA had concluded there was no systemic risk at the bank so decided there was no need to inform the Government, he said.



But MPs were incredulous the tripartite authority made up of the FSA, Bank of England and Treasury officials was never made aware of the issue.

Close: Gordon Brown with Sir James Crosby back in 2001. The ex-HBOS boss was one of the Prime Minister's key economic advisers

George Osborne declared Labour either knew exactly what was going on or was 'entirely ignorant', adding that neither was 'much of a defence'.

The shadow chancellor told Mr Darling in the Commons: 'The net is closing in on the Prime Minister and you. Their accomplices are resigning.



'Their alibi that nobody knew what was going on has been blown apart. And their fingerprints are all over the mistakes that were made during the age of irresponsibility.'

On bonuses, Mr Brown insisted the 'short-term bonus culture of banks has got to end' and specifically backed controversial 'claw back' proposals.

This would see bankers who were rewarded having to pay money back if it later turned out they had not done a good job.

'It should not be a one-way bet,' he told the committee. 'In other words, if you fail there is a clawback which is also possible within a bonus system.'

Out: Sir James at his home yesterday after he resigned as deputy chairman of the Financial Services Authority

The FSA first warned HBOS about its risk assessment in 2002, it revealed in a shock statement last night after Sir James' resignation.



The bank then made changes, including upgrading the post of senior risk manager to board level, the regulator said. Mr Moore was sacked and replaced in 2004.

By December that year, the situation had improved but the bank was still told it needed to increase the ability of its risk experts to influence the business.

Mr Moore subsequently claimed he had been sacked for questioning the approach of the bank and replaced with someone without risk experience.

Warnings: The FSA says it warned HBOS it was taking too many risks considerably before ex-employee Paul Moore raised his concerns

The FSA said last night that it had taken his allegations seriously but backed the findings of an inquiry in 2005 which ruled they were unfounded.

However, in 2006, it still had concerns about HBOS and warned its growth strategy 'posed risks to the whole group' which 'needed to be managed and mitigated'.

Today's meeting was already going to be uncomfortable for Mr Brown, coming at a time when his handling of the financial meltdown is in disarray.

Labour has slumped in the opinion polls in recent weeks and now, with the row over Sir James, critics can link the Premier even closer to the banking crisis.

As he resigned yesterday, the former HBOS chief insisted that the claims made against him had 'no substance' but that stepping down was 'the right course of action'.

There was widespread speculation that Number Ten had forced his hand to limit Mr Brown's embarrassment at Prime Minister's Questions.

But Sir James said last night that his resignation was 'solely inspired by the desire not to make life more difficult for colleagues... under relentless pressure at the FSA'.

Mr Brown said he was 'right' to have stood down and also revealed he was no longer working as an economic adviser to the Government.

The banker had become HBOS chief executive in 1999. In 2004, he was appointed to the board of the FSA with Mr Brown's approval.



After his departure from HBOS, he was appointed by Mr Brown, the then Chancellor, to produce a report supporting Labour plans for ID cards - and was knighted.

In 2007, he became deputy chairman of the FSA and then in April 2008, the Treasury turned to him again when they needed a report into the ailing mortgage market.

Budget delayed until April



The Government has announced this year's Budget will be delivered on April 22 - more than a month later than usual.



Alistair Darling is expected to unveil yet more measures to offset the recession and financial crisis in the report.



He is also likely to revise his forecast that the economy will return to growth in the second half of 2009.

