According to the BBC, Sir James, who is also a former adviser to the Treasury, said there was "no substance" to the allegations by HBOS ex-head of risk Paul Moore but he nevertheless felt that resigning from the FSA board was the "right course of action".
Mr Moore's allegations came to light during a session of the Treasury select committee examining the current banking crisis.
The former executive said he had warned the HBOS board that the bank was expanding too fast and that its strategy was a "serious risk to financial stability and consumer protection".
He claims to have been "summarily dismissed" by Sir James.
However, the bank's ex-CEO said it had "extensively investigated" Mr Moore's claims and found them to be "without merit".
Labour MP George Mudie had previously said that the current crisis illustrated that Mr
Moore's concerns had been well-founded.