Crosby 'right' to stand down - PM

Sir James Crosby is no longer advising the government

Gordon Brown has told MPs that Sir James Crosby was "right" to stand down as vice-chairman of the Financial Services Authority (FSA).

Mr Brown said Sir James was facing "serious but contested allegations" relating to his time as head of HBOS.

He also confirmed that Sir James was no longer acting as an economic adviser to the government.

David Cameron said the prime minister had made a "serious error of judgement" in giving Sir James such a role.

'Serious allegations'

Sir James faces allegations that he ignored warnings from within HBOS - of which he was chief executive up to 2006 - that the bank's lending policies were too risky.

A former HBOS employee said he was dismissed by Sir James for alerting the bank to the fact it was expanding too fast, an allegation denied by the bank.

Sir James Crosby has had the decency to resign. Why can't the prime minister have the decency to admit he got something wrong David Cameron

Reacting to Sir James' surprise decision to resign as vice-chair of the FSA, Mr Brown said the move was the "right" one.

Mr Brown said Sir James had said there was "no substance" to the allegations but said that it was the "right course of action" for him to step aside.

"In relation to Sir James, these are allegations that he will wish to defend," Mr Brown said.

"So it is right that he has stepped down."

He said an independent investigation into the allegations against the board of HBOS by accountants KPMG had found them to be unsubstantiated.

But he suggested it would be appropriate for the Treasury Select Committee to look at the issue again.

'Error of judgment'

"It is right we investigate serious allegations made about the banking system," he said.

"It is important that the FSA is operating to the best standards possible."

Mr Cameron said that Mr Brown had "singled out" Sir James to advise him on key economic issues such as bank regulation, a decision he called a "serious error of judgment".

"Let's be clear about what has happened," he said.

"Sir James, the man who ran HBOS and who the prime minister singled out to regulate our banks and advise the government, has resigned over allegations that he sacked the whistleblower who knew his banks was taking unacceptable risks."

"Taxpayers have poured billions into this bank and not only was Sir James appointed as one of the top regulators in the country, you have been relying on him for economic advice."

"Sir James Crosby has had the decency to resign. Why can't the prime minister have the decency to admit he got something wrong?"

Sir James wrote two reports for the government, on efforts to revive the mortgage market and the development of the government's controversial ID scheme.

During PMQs, Mr Brown also came under fire about the appointment of Glen Moreno as chairman of UK Financial Investments Ltd - the company set up by the Treasury to manage the state's investments at arms's length from ministers.

Until last April, he was a trustee of a Liechtenstein-based fund at the centre of a row over tax evasion.

Mr Brown said Mr Moreno was serving as "acting" chairman.