THE role of the world's oldest banking institute has been called into question after it failed to strip disgraced banker Fred Goodwin of its fellowship in the light of his catastrophic handling of the RBS affair.

The Edinburgh-based Chartered Institute of Bankers in Scotland, which once had Mr Goodwin as its president, has had its competency in rebuilding financial sector integrity challenged after it refused to bar the former knight.

The institute – the UK's leading provider of banking qualifications with around 10,000 members in 35 countries – felt that as it did not have any statutory or regulatory powers, it could not take action, and Mr Goodwin remains a member.

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Now it has emerged Simon Thompson, the institute's chief executive, has been forced to defend its position after being criticised by the members of the Parliamentary Commission on Banking Standards. Commission chairman Andrew Tyrie said the institute's lack of action called into question whether the body could play a role in restoring public confidence.

The institute's code of conduct for fellows and members demands they "consider the risks and implications" of their actions, treat colleagues with "respect" and "uphold the name and reputation of the banking profession and the financial services industry".

However, the body, founded in 1875, whose stated aim is to help rebuild faith in banks and bankers, says it found it "very hard" to investigate conduct issues over Mr Goodwin.

Mr Tyrie said: "It's extraordinary. Every other private institution out there doesn't sit around waiting to find out whether Parliament is going to legislate to help it to decide who is suitable to be a member."

He said the institute's position gave "powerful evidence to suggest the body is not the one best suited to play a role in restoring standards".

Mr Goodwin, who lost his knighthood in February last year for bringing the honours system into disrepute, helped steer RBS to disaster, allegedly terrified his colleagues, and became a symbol for greed and hubris among bankers.

The institute is understood to have considered what to do after the Financial Services Authority (FSA) looked into the 2008 RBS collapse, which left tax-payers with a £45 billion bill and 82% of its shares.

The FSA report, from which some criticism of Mr Goodwin was removed by his lawyers, was seen as ambiguous. But one of the external advisers on the FSA file, Sir David Walker, told a Commons committee that it did amount to a censure.

Mr Thompson said: "It is a very simple thing. We need to know a regulator has imposed sanctions on him. Our rules say that when a regulator imposes censure or sanctions on an individual, we will remove them.

"He is on the FSA register and he is on the register of an accounting body, and neither body has seen fit to sanction him.

"We are waiting for regulators, who have the power to do these things, to take action."