The new Bank of England Governor will be Mark Carney.
The new Bank of England Governor was released at the start of the week, with the candidate rather surprising to most speculators. Mark Carney will leave his lead post at the Canadian Central Bank and take over at Britain’s next July. It was a surprise as he publicly and privately rejected the job, with many making Paul Tucker the favourite. Paul Tucker is the current number two and knows the inner works of the bank well, but was criticized for being too similar to the current Governor, Sir Mervyn King. There was an urge for something different after the Bank was caught cold in the financial crisis of 2007, reacting much slower than other central banks. Mark Carney couldn’t be accused of such an act, as he was one of the first central bank leaders to cut interest rates drastically in Canada. He is indeed the best candidate available, with heavy central bank experience and importantly global knowledge (as the only non-British candidate that was considered). But what sort of direction will he lead Britain as the Central Bank gains more and powers, and was it worth the hassle?
As head of the Bank of England, Mr Carney will hold more powers than previous governors have possessed. Alongside the control of monetary policy (manipulating interest rates to control inflation) and quantitative easing (the printing of British money), Mr Carney will also supervise individual banks and have extra tools to control lending in the British economy. This is a lot of responsibility, but Mr Carney has a good track record. During his term as the head of Canada’s central bank, they proved resilient to the worst of the financial crisis (with one the shortest recessions in the rich world), while none of their banks had to receive a bailout (a rare event at the time). He also heads the FSB (Financial Stability Board), an international body that coordinates the regulation of the financial world. Alongside this he studied at Harvard and Oxford, had practical experience of the financial world by working at Goldman Sachs and is respected by most of the business people he interacts with. That would be a large difference from Sir Meryvn King, who is largely disliked in the private sector for his bank bashing and over-the-top panic calls.
Sir Mervyn King is disliked in the financial world.
The big question marks he will face are over the commercial banks that are so vital to Britain’s economy. Sir Mervyn King has spoke out recently about debt bombs that are still waiting to explode in the banks systems, arguing they need more capital built up still to ensure their safety against the Euro crisis. While many suggest this to be a bit extreme (with a EU break-up looking less likely), British banks are still not as secure as say, American Banks, which went through vigorous stress tests to ensure they were safe. RBS and Barclays are two of the top five under-capitalised banks in Europe, while RBS is likely to face large fines in its involvement in the Libor scandal. Mr Carney is likely to ensure this changes; with a history of backing tough regulation as chairman of the FSB, while as head of the Canadian Central Bank he used his position to make public any grievances he had over the banks. Another upcoming problem is the popular demand that banks split up their investment arms away from the retail side. It’s hard to predict what direction Mr Carney will take on this, but in Canada the top six banks all have large investment arms, with Mr Carney not challenging them so far to split up their businesses. Finally there is the matter of QE, which the Bank of England has used regularly to help boost the economy. In Canada, Mr Carney has yet to print any money, instead promising to keep record low interest rates (at one point just 0.25%) over a set time, something the US Federal Bank has replicated recently. But the Canadian economy has fared a lot better than the British economy has in the last 5 years, so it hard to suggest he is against QE completely. But with the Bank of England already having spent £375 billion, it is unlikely Mr Carney will want to print more money any time soon.
This chart found at the Telegraph shows RBS had the lowest capital ratio of the British Banks.
But was Mark Carney worth all the hassle it took to get him? Chancellor George Osborne has spent the year convincing him to take the job, even going to the extremes of offering him £624,000 a year (far more than the current incumbent, Sir Mervyn King), relocation and accommodation allowances and has cut the offered term time to 5 years from 8 years at Mr Carneys request. Such effort to get this candidate seems over the top, but then he is a well qualified candidate in a top government position, with even more powers than his predecessor. The pre-favourite Paul Tucker may feel hard done by that such expense was made to give his rival the job, but Mark Carney was a much better candidate at the end of the day.
Paul Tucker was largely pushed to the side in the chase for Mr Carney.
George Osborne will feel glad he has managed to pull off such a coup after a poor year in which his budget was heavily criticized and he was himself booed at the Olympics. Britain now has a world class Bank of England Governor that will hopefully fix its banking sector and ensure that Britain once again becomes a leading nation in the financial world. The cherry on the top is that for the first time in the banks history, a foreigner has been appointed the top position. For a nation that is trying to naively cut immigration figures by restricting student visas, it is a great sign of the countries openness.