A top British financial regulator accused of ignoring risk warnings resigned on Wednesday as politicians grilled leading bankers over the integrity of the financial system and the size of their pay packets.
James Crosby, the former chief executive of British bank HBOS and advisor to British Prime Minister Gordon Brown, stepped down as deputy chairman of the Financial Services Authority.
Mr Brown tried to limit damage from Crosby's resignation, saying the former banker no longer advised the government having completed two reports on mortgages and security issues.
Mr Crosby said allegations that he ignored risk warnings while at HBOS had already been investigated and had no merit.
The resignation follows accusations by Paul Moore, former head of regulatory risk at HBOS, that his warnings the bank was growing too fast were ignored and resulted in his sacking.
Bank chiefs questioned
Banking chief are faced an ongoing parliamentary inquiry into a crisis in which Britain has been forced to nationalise large parts of its banking system.
Executives arriving at the hearing were met by a swarm of photographers and cameramen and a long line of reporters and members of the public queuing to enter the cramped hearing room.
The bankers fended off robust questioning in which Treasury Select Committee Chairman John McFall accused Spanish bank Santander, owner of Britain's Abbey, of having an "utterly duff" due diligence process after its customers ended up with a 2.3 billion euro exposure to an alleged fraud by US financier Bernard Madoff.
Contrite bank bosses echoed apologies at a similar hearing on Tuesday when the former heads of Royal Bank of Scotland and HBOS apologised for the mistakes that brought two of Britain's biggest banks close to collapse.
Royal Bank of Scotland's new chief executive Stephen Hester said he empathised with public anger over taxpayer-funded bailouts and lavish bonuses for bankers, and said pay in some areas of the banking industry needs to come down.
He predicted it would take three to five years to stabilise RBS and bring it back to "standalone growth".
Barclays Chief Executive John Varley said it was "perfectly understandable and reasonable" to conclude that banks were more to blame than any sector for the state of the British economy which is in recession.
