HBOS's Boss

The recent media coverage of the resignation of Sir James Crosby from his role as deputy chairman of the FSA does raise a lot of questions.

In principle turning a poacher into a gamekeeper can be a good idea, because poachers know how to beat the system. But there appear to be worries that the system did not need any beating - you could just ignore the FSA in those days.

Then there is the other view that most bank chairmen are being held to account for the way they ran their banks back in the early 2000's but Sir James was escaping this criticism.

But the most worrying is that we still do not seem to know what went wrong and how to avoid it in the future.

HBOS did have a system for managing risk - there was a least one person in the department, because he, Paul Moore, was sacked in 2005 for blowing the whistle on the level of risks he thought were being taken. His view seems to be confirmed by the fact that the FSA had warned HBOS about its lack of risk management infrastructure back in 2002, 2004 and 2006 (see the BBC article).

The issue - the banks did not seem to grasp how much of a risk they were taking with the banking system as a whole. They appear to have seen profit opportunities without considering the maxim "if it looks too good to be true, it probably is." So how do we avoid such problems in the future? Perhaps we can put in safeguards to avoid the same problem happening again, but I am not sure we can change human nature - the profit-seeking which overrode the caution that bank managers used to show when anyone asked them for money! Come back Mr Mainwaring, all is forgiven!