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Gordon Brown has defended the appointment of Sir James Crosby as deputy chairman of the Financial Services Authority.

Making his twice-yearly appearance before the House of Commons liaison committee, Mr Brown also criticised HBOS for its "flawed business model".

Sir James quit the FSA yesterday amid rumours he fired a whistleblower at HBOS when he warned the bank was overextending itself.

Appearing before MPs, the prime minister said he took responsibility for Sir James' appointment to the FSA.

"The appointment was done in a very clear way. A committee was set up, but I as minister take responsibility," he said.

"They acted as independent assessors and they recommended Sir James. They said he was outstanding individual with great intellect."

He added at the time the FSA regarded the HBOS issues "as dealt with".

"I believe the right decision was taken," he said.

The prime minister also told MPs HBOS failed because of a flawed business model.

"HBOS failed as its whole business model was wrong," he argued.

Mr Brown defended the FSA in its regulation of the City – in particular how it had dealt with risk management problems at HBOS.

But he claimed the Treasury – when he was chancellor of the exchequer – was probably not aware of the FSA's investigations into HBOS, which were revealed last night in fall-out from the resignation of Sir James.

Turning to bank bonuses, he called for a new system of executive remuneration based on longer term performance.

Mr Brown also said he would leave "no stone unturned" to aid the economy.

The prime minister said the £37 billion recapitalisation of banks "was essential to stop [the banks] collapsing" and added the next stage was to get lending returning and have investment-led growth.

"We are getting money out to companies.

"Everything we have been doing, is followed by countries around the world, which I think means we are doing the right thing," he said.