THE Co-operative Bank is facing an inquiry into the decision to appoint disgraced Methodist minister Paul Flowers as its chairman.
Chancellor George Osborne is to order the independent inquiry following discussions with financial regulators.
The development came after West Yorkshire Police searched the home of Mr Flowers in relation to allegations that he bought and used illegal drugs including crystal meth, crack cocaine and ketamine.
Mr Osborne is considering using powers created by last year’s Financial Services Act to order an independent inquiry looking into all of the Co-op’s difficulties, though this would have to await the conclusion of any police inquiry or enforcement action by the Financial Conduct Authority or Prudential Regulation Authority.
No details were available of the expected remit or scope of any inquiry, but Downing Street sources said a decision could be expected “relatively soon”.
At Prime Minister’s Questions in the House of Commons, David Cameron told MPs there were “clearly a lot of questions that have to be answered” in relation to the Co-op Bank.
“The Chancellor will be discussing with the regulators what is the appropriate form of inquiry to get to the bottom of what went wrong here,” he said.
“Why was Rev Flowers judged suitable to be chairman of a bank? Why weren’t alarm bells ringing earlier, particularly by those who knew? I think it will be important in the coming days that if anyone does have information they stand up and provide it to the authorities.”
Co-operative Group chairman Len Wardle has already quit amid the scandal, which came after the ailing bank had to be bailed out by hedge funds after getting into financial difficulties.
Mr Cameron said the “first priority” was to safeguard the bank and ensure its customers and bondholders were protected without using taxpayers’ money.
But he also sought to increase pressure on Labour leader Ed Miliband, who is facing growing questions over his party’s links to the former bank chairman, who has also been accused of incompetence.
Tory chairman Grant Shapps has questioned when Mr Miliband and shadow chancellor Ed Balls became aware that Mr Flowers had resigned as a Labour councillor in Bradford after adult material was found on his computer. He has also challenged the Labour leader to explain why Mr Flowers had been brought on to the party’s business advisory group and to return a £50,000 donation to Mr Balls’ office that he had backed.
Mr Cameron said: “What we can now see is that this bank, driven into the wall by this chairman, has been giving soft loans to the Labour Party, facilities to the Labour Party, donations to the Labour Party, trooped in and out of Downing Street under Labour, still advising the leader of the Labour Party.”
Mr Miliband sought to avert the attack – dismissed by a senior Labour source as “a rather desperate political distraction” – by reminding Mr Cameron that his own party had taken donations from individuals such as Asil Nadir, who was jailed after going on the run while facing fraud allegations.
The Labour source said the government had “questions to answer” about ministers’ meetings with the Co-op at a time when it was being encouraged to take over Lloyds branches.
The Methodist Church, which had suspended Mr Flowers for a three-week period, yesterday said the suspension was now indefinite but its disciplinary procedure would be put on hold until after any police inquiry.