Erikka Askeland: Response proves Turner's piqued by Tyrie's committee

THE unusually frank letter published by the chairman of the Financial Services Authority (FSA), Lord Adair Turner, just goes to show that the watchdog's pips have been truly squeaked by chairman Andrew Tyrie's Treasury select committee.

In response to some recent pressure being put on the regulator, not only did Turner pledge to launch a full and public report into the problems that led to the ignominious collapse of HBOS, he also admitted that the bank was currently the subject of an even more serious FSA enforcement investigation.

Not that it should come as such a surprise that the failure of HBOS would be looked into. Except the FSA only conducts these digging exercises under the darkness of deepest secrecy. Even to admit an enforcement procedure is being undertaken can have such a detrimental effect on the firm being investigated that the watchdog will steadfastly refuse to confirm it is going on until it is concluded.

However, the banking crisis and the urgent need to ensure the regulator will be able to learn from its own past mistakes means the investigation into HBOS is exceptional.

The results of such investigations in the past have lead to fines, for directors or companies, and also to directors being banned - as happened to former RBS director Johnny Cameron, who agreed never again to work in an FSA-regulated job in the City as a result of his role in the downfall of the bank's global markets division.

It gives rise to all sorts of wild surmise about how the FSA is handling former HBOS directors. The results of this will not be known until the FSA investigation is complete, but Turner specifically said that HBOS's role in the pre-crisis credit boom was a "key element" in the "economic harm" caused by the resulting financial melt-down. This suggests that any number of familiar HBOS names are likely to have been called in to be grilled, including former chief executive Andy Hornby, who not too long ago left the top job at Boots because he was "stressed".

But, if we are really looking into "pre-crisis" operations, his predecessor Sir James Crosby, who resigned from his role as deputy chairman of the FSA in early 2009, could also be on the list.

Other enforcement investigations, such as that conducted on RBS last year, came back clear, albeit the howls of derision when the FSA made that call last December is what prompted the regulator to promise the publication of an wider account of why RBS needed to be bailed out to the tune of 40-odd billion.

Aware that the world has been awaiting this report for quite a long time now, Turner admitted that the FSA's process has been "highly imperfect".

But what is a regulator to do? Turner said, in his watchdog's defence, that no-one knows who gets to make the call on when a report is made public or kept a secret.All of this will and should change as the FSA's role comes under the governance of the Bank of England. But this also amounts to another huge overhaul of regulatory legislation.

The RBS enforcement investigation which was reported in December had already taken 17 months to complete. No-one will even admit to how much longer the current HBOS investigation will take, let alone the follow up - probably next year. And while SNP Treasury select committee member Stewart Hosie was "disappointed" that Turner ruled out giving us big warts-and-all reviews of the failures at Bradford & Bingley and Northern Rock, too, we are simply running out of time.

Threat is often stronger than the solution

WHAT if the European debt fiasco were like an episode of the Sopranos? One lesson might be that if someone can't pay their debts, killing them off should be a last resort - not least because it is unlikely they will be able to make repayments from the grave.

So better to extend the terms of the debt and make the payments easier to manage - which is what European leaders and its central bank have agreed to do with Greece. This is done in the hope that by bailing the feckless one out, Europe proves it is big and strong enough to make Greece good for its credit with other lenders - and thus reducing the risk that these will come and smack up its bigger brothers, Spain and Italy, for cash.

But if the draft eurozone proposals announced yesterday look like confidence tricks, in a way, they are. The markets were cheered as bank stocks across Europe rebounded but it is a "wait and see" if Europe can actually pull it off.