Monday, November 26, 2012

Canadian to Lead Bank of England

http://www.nytimes.com/2012/11/27/business/global/canadian-to-lead-bank-of-england.html?_r=0


November 26, 2012
Canadian to Lead Bank of England
By LANDON THOMAS Jr. and JULIA WERDIGIER, NY Times

LONDON — In a surprising departure from convention, the British government on Monday selected Mark Carney, the head of the Canadian central bank, to succeed Mervyn King as the next governor of the Bank of England.

The appointment ended a months-long process in which some of Britain’s most prominent public officials vied hungrily for a post that will come with sharply enhanced powers.

The odds were heavily stacked in favor of the Bank of England’s deputy governor, Paul Tucker. The decision to select a foreigner to lead Britain’s most storied financial institution came as a shock when George Osborne, the chancellor of the Exchequer, broke the news during a session of Parliament on Monday.

The appointment is arguably the most significant in the bank’s 318-year history in that Mr. Carney will not only be the first foreigner to lead the bank, but he will also take responsibility for the health of the British financial system. In addition, the central bank will directly regulate and oversee the country’s banks and other financial institutions.

The pressures facing the new governor are immense. Not only must he make decisions as to whether to continue the aggressive money-printing program aimed at stimulating the economy, he must also ensure that the central bank’s independence and reputation are not sullied by an ongoing investigation into the manipulation of key interest rates by commercial banks.

Indeed, the decision to pick Mr. Carney seems to have been heavily influenced by the taint of the interest-rate scandal that, although diminished, remains attached to Mr. Tucker.

Early in the scandal, e-mail exchanges between Mr. Tucker and Robert E. Diamond, then chief executive of Barclays, emerged which suggested Mr. Tucker may have supported the idea of keeping rates artificially low.

Mr. Carney, a former Goldman Sachs executive, is widely admired for the steady job he has done in preserving financial stability in Canada in the face of pressures that have shaken other countries.

“This is a new job,” said Simon Hayes, an economist at Barclays. “Previously, the focus was mainly on monetary policy. Now, it is about financial stability, monetary policy and macro-prudential policy. The key is to get the right mix of policy and making sure there is proper coordination with the Treasury.”

The bank’s new heft represents a stark shift from the era of light-touch regulation that held sway before the crisis, in which the bank’s ability to intervene and take action to issue warnings of financial excess were constrained.

Mr. King, who will stay as central bank governor until this summer, has emerged as Britain’s most vociferous critic of irresponsible bank behavior. But he has also been criticized for acting too slowly in 2007 to bail out Northern Rock, the mortgage lender whose collapse that year marked the onset of Britain’s financial crisis.

The central bank’s broader regulatory powers will be wielded by a newly formed Financial Policy Committee, operating inside the bank and presided over by the governor. With its new muscle, it is hoped that the bank will be able to sniff out early-warning signals like excessive risk taking and borrowing by the banks and move to take action to defuse a crisis — something it was not able to do in 2007.

Reflecting the importance of the position, Mr. Osborne cast a wide net in searching for a successor and took the unusual step of considering candidates from outside Britain. The names of prominent investment bankers also surfaced as potential central bank chiefs, underlining the hunger for outside-the-box thinking with regard to the appointment.

Although Mr. Carney’s name emerged months ago as a potential successor to Mr. King, the Canadian quickly and publicly removed his name from consideration. But Mr. Osborne, who, as Prime Minister David Cameron’s top political adviser, has a fondness for grand gestures.

Mr. Carney is head of the Financial Stability Board, a newly formed international body that oversees the health of the global financial system. That, along with his experience in the private sector, made him a compelling candidate — assuming that is he could be persuaded to take the job.

At Goldman, where he worked for 13 years, Mr. Carney’s areas of responsibility included sovereign debt and emerging markets debt. The former is a particular asset, given the continuing crisis in the euro zone.

“He’s highly regarded here and known for his strong but calm hand throughout the financial crisis,” said Issa Mazen, a strategist at TD Securities in Toronto. “Carney was decisive and responded firmly, understanding the scope and magnitude of the crisis. He’s also a leading advocate on good communication and transparency.”

For Mr. Tucker and Adair Turner, the current chairman of the Financial Services Authority, Britain’s main regulator, the decision comes as a blow.

Mr. Tucker, who until the interest-rate scandal had been seen to be a shoo-in to succeed Mr. King, has been at the central bank for close to 20 years and is widely recognized for his knowledge of the markets. But with the ongoing investigation into banks’ manipulation of the London interbank offered rate, or Libor, the risks were high that Mr. Tucker might be caught up in the scandal once again.

Mr. Turner, a trained economist with a flair for eye-speeches and a healthy ego to boot, was seen as the more politically savvy candidate. But the F.S.A. has been criticized for missing the onset of the crisis on his watch.

No comments: