Turner and King face grilling over failure to rein in reckless bankers

LORD Adair Turner, chairman of the Financial Services Authority, and Bank of England governor Mervyn King will be pressed by MPs this week to explain why they failed to stop the big banks taking risks that led to their downfall.

The UK's financial and banking regulators will be put on the spot by the Treasury Select Committee, which is investigating the banking crisis. The FSA is expected to admit its failings and that they have now been addressed in an attempt to prevent any further crises.

Lord Turner admitted last week that the regulator did not recognise the "systemic risk" that developed in banks. However, he is insistent that his staff should still receive bonuses, something which is likely to anger the select committee.

"With hindsight, the FSA, like other authorities throughout the world, was focused too much on individual institutions and the pressures and procedures within them, and not adequately focused on the totality of the systemic risks across the whole system… the new world of regulation will look really quite different," said Lord Turner.

Top of the agenda on Wednesday will be why the FSA allowed HBOS to follow its strategy of focusing on growing its mortgage business quickly on the back of the booming housing market when it had been alerted to the dangers.

The FSA revealed that it had concerns about HBOS in 2002. At the time, it identified that the bank needed to "strengthen the control infrastructure within the group".

The revelations came after it emerged during a select committee session earlier this month with Andy Hornby, the former chief executive of HBOS, and Lord Dennis Stevenson, its previous chair, that a whistleblower had voiced his concerns. Paul Moore warned both the regulator and Sir James Crosby, the bank's then chief executive, that the company was growing too fast and taking too many risks.

Moore subsequently lost his job. Despite the FSA carrying out a review involving external auditors, HBOS was allowed to continue with its strategy without the investigation being made public. Following the recent allegations, Crosby stepped down as deputy chairman of the financial watchdog.

Michael Fallon MP, a member of the select committee, has previously accused the FSA of being "asleep on the job". Similar accusations will be thrown at Lord Turner, Hector Sants, chief executive of the FSA, and Loretta Minghella, chief executive of the Financial Services Compensation Scheme, when they sit on Wednesday.

King, Paul Tucker, deputy governor elect of the Bank of England, and executive directors Andy Haldane and Andrew Bailey will face the committee on Thursday.

Last week Sir John Gieve, the current deputy governor, who is stepping down after three years, hit out at the tripartite system, saying: "The footwork of the Bank, the Treasury and the FSA may have owed more to John Sergeant than to Fred Astaire."