Can Carney restore the BoE to its former glory?

As governor of the Bank of England, Mark Carney has the task of repairing its reputation and culture, both of which were tarnished by the GFC. It’s early days yet, but he looks to be making all the right moves.

Being governor of the Bank of England may no longer be the most influential job in the world of high finance, but it is still the most elegant. The handsome offices behind an imposing façade on Threadneedle Street are filled with antique furniture and ticking clocks; his pronouncements as Britain’s central banker are listened to carefully, and he remains an authoritative personage in the City of London.

Since July 1, the Bank of England has had a new governor, Mark Carney, about whom little is known. Five months into the job, he has started to introduce himself to an audience that is curious about him. Carney is a Canadian citizen, who also holds an Irish passport, and has promised David Cameron, the prime minister, that he is intent on meeting the residential qualification for British citizenship. We know, then, that he is anxious to play the part.

Carney is a personable figure; aged 48, he has good bones, and well-cut hair greying nicely at the sideburns. He is fluent, unapologetic, and well aware that two essential attributes required of him are independence and authority. Appearing recently before the Treasury Committee of the House of Commons, he became quite cross when a Labour member suggested that he was too kind to the chancellor of the Exchequer: more of a politician than a central banker, said the MP. Carney raised a thin smile at the inference that he has prejudiced his independence: “Of course not,” he said, “I’m more than mildly offended by that suggestion.”

The eminence of the governor in the City of London ought to be taken for granted. For my first interview with a governor in the mid-1970s I felt I had to buy a new suit. He was called Gordon Richardson until he became Lord Duntisbourne (like all his successors, he went on to the House of Lords). An imposing figure, he informed me that the office of governor commanded respect and goodwill: “It’s true of prime ministers and Popes, isn’t it?” he said. (I checked; I had not misheard him.)

Not all his successors were quite so grand. Robin Leigh-Pemberton (Lord Kingsdown), who died last month, was a bluff country squire during whose term the city of London was transformed by the “Big Bang” into a global market place, and a man’s word ceased to be his bond. Sharks began to swim in his pond, surrounded by shoals of lawyers. 

He was followed by Eddie George (Lord George), an unpretentious and highly capable technician. When Gordon Brown, the new Labour chancellor, announced in 1997 that the Bank would be empowered to set interest rates independent of the Treasury, George looked this gift horse in the mouth and did not like what he saw. The quid pro quo was that bank regulation was hived off to a separate organisation. George thought that was unwise and he was proved right when the new scheme for regulating banks imploded shortly before his death in 2009.

Next in line was Mervyn King (Lord King). He was an academic economist who delighted in the freedom to make monetary policy. He also tended to ignore the banking system, until he was forced to take part in the bailing out of a substantial part of it in 2008. King was a subtle operator in the arena of public power, however, and managed to win back for the Bank of England regulatory power over the banking system while retaining independence over monetary policy. King’s legacy is more power to the governor.

But the greed – fuelled by an absence of fear – among the bankers and splendid financiers during years of unregulated boom and dreadful bust had damaged the reputation of the Bank and the authority of the governor. Its culture had become tired, unresponsive and slow to act. It clearly needed an outsider to fix it. The chancellor of the Exchequer looked abroad and he found Mark Carney at the Bank of Canada in Ottawa. He is Osborne’s mercenary banker.

Carney is an all-rounder. He worked for Goldman Sachs on Wall Street, and held a senior position in Canada’s finance ministry before becoming a Bank governor. Carney is rumoured to have political ambitions. He denies this, but his interest in the job in London is said to have increased sharply when he learned that he was not going to be elected leader of the Liberal Party in Canada. His package of £874,000 a year ($1,573,000) was a great deal more than his predecessors had earned.

He insists that it will be one five-year term only, so he is a governor in a hurry. Schemes that worked in Canada have been floated in the City, such as “forward guidance” and “macroprudential regulation” in the housing market. They are designed to indicate when interest rates might rise (not before unemployment, now 7.6 per cent, falls to 7 per cent), and how he intends to cope with a potential bubble in the housing market. His solutions are ingenious and untried, but forward guidance has not so far dispelled uncertainty about the future course of interest rates.

These are early days, of course. Monetary policy is crucial; Britain’s banking system is unreformed, and bankers are still mistrusted; the culture of the Bank of England itself is undergoing tumultuous change. If all these are looking better set by June 2018, when Carney might have qualified for his British citizenship, he will then be entitled to a seat in the House of Lords. He would probably prefer to be prime minister of Canada.

Stephen Fay is a former editor of Wisden and author of books about the Bank of England and the collapse of Barings.