Sunday, November 11, 2012
Change at the top: Who'd be best at the Bank?
Posted by David Smith at 09:00 AM
Category: David Smith's other articles




My regular column is available to subscribers on This is an excerpt.

Barack Obama has been re-elected. There is change to a top in China and the Church of England. All that sets things up for the big one, the next governor of the Bank of England, to be announced by George Osborne before the end of the year, probably in his autumn statement on December 5, if not before.

I jest about the importance of this appointment, but not much. The new governor will take over on July 1 next year for an eight-year term. It will be surprising if that term in office does not stretch beyond Osborne and David Cameron.

A lot will happen between now and 2021. The successful candidate will have powers and responsibility denied any previous holder of the post. The new governor will do most of the heavy lifting in steering the economy, and the banking system, back to health. The prosperity of citizens, not to mention the City, will be in their hands.

The Bank paused in its £375 billion quantitative easing programme on Thursday and, one hopes, has put the policy to bed. Under the new leader’s term, the judgment will have to be made about when to raise interest rates - as go up they surely will - and sell back the gilts acquired under QE.

In the meantime, and rather too conveniently, the chancellor has raided the £35bn QE interest pot to improve the look of the public finances in the short term.

There are checks and balances. Sir Mervyn King often reminded us he had only one vote on the nine-member monetary policy committee (MPC). That will remain true, as on the recently-created 11-member financial policy committee.

But Alistair Darling, with his killer description of Sir Mervyn as “some kind of Sun King”, reminded us of the governor’s power within the Bank. It is unlikely to diminish much with a change at the top.

Who will it be? When I say nobody knows, I think it is true. There is a short-list of about six. The panel - Treasury officials Sir Nicholas Macpherson, Tom Scholar and John Kingman and Sir David Lees, who chairs the Bank’s court - is seeing candidates and will make a recommendation (or a choice of two) to the chancellor.

Who is on the short-list? Certainly Paul Tucker, Bank deputy governor for financial stability, the bookies’ favourite. Certainly too Lord Adair Turner, chairman of the Financial Services Authority.

Sir John Vickers, former chief economist at the Bank and head of the Osborne-appointed banking commission, must be there. The bookies think, in spite of his repeated denials, Mark Carney, Bank of Canada governor, is in the frame. Lord Terry Burns is a possibility for another career change, even at 68. Lord O’Donnell, another ex Treasury permanent secretary, has apparently ruled himself out.

There are potential women candidates, including DeAnne Julius and Kate Barker, former MPC members and Rachel Lomax, a former deputy governor. Sharon Bowles, the Liberal Democrat MEP , has applied.

Lord Green and John Varley are frequently mentioned ex bankers, though suffer from a toxic brand. There may be exotic names. The Economist has suggested Arminio Fraga, a former Brazilian central-bank governor, and Leslek Balcerowicz, former Policy central bank head.

I don’t rule out a dark horse possibility. The thing about them is that they surprise you by streaking ahead at the finish. In their absence, the front-runners are Tucker, Turner and Vickers.

Tucker, the favourite, having had his baptism of fire over Libor and his pally relationship with Bob Diamond, has the advantages and disadvantages of incumbency. He has been much more willing to admit to Bank errors and shortcomings than King.

There is little doubt he would have been more proactive when the crisis broke in 2007, and more responsive to the cries of anguish from banks when liquidity dried up. He recognises the importance of the City remaining a big global player, though one better regulated than in the past.

Tucker knows where the bodies are buried in the Bank, with an insider’s knowledge of how to improve things. But critics will say he is the continuity candidate, who should have been more aware of the financial iceberg looming before the crisis.

Turner joined the FSA late enough - in September 2008 - to be absolved of that criticism. In letting it be known he is keenly interested in the job, he has irritated some. A recent speech by King was seen by many as a public slapdown for Turner.

He does not suffer self-doubt. A joke doing the rounds in the City asks why the FSA chairman is covered in love bites, to which the answer is they are self-inflicted. His big aberration was aggressive advocacy of euro membership for Britain, and I remember him telling me I had got it entirely wrong on the euro. But he has recanted and he has upped his game.

Recent speeches show that he is putting in a lot of homework. In South Africa a few days ago, he cited the doyens of the Chicago School of Economics, as well as other ancient and modern economic texts. His attacks on the City’s “socially useless” activities and the failure of the banking system to support the real economy have struck a chord. He would be a good front man.

Turner would be the change candidate, but the fear is he would seek to shake things up too much. The City would see him as the WTM (worst than Mervyn) choice, while banks would be sent into a huddle of uncertainty. In his speech he debated whether fractional reserve banking - the basis of Western banking for centuries - should continue. That and the prospect of a mass exodus from the Bank if he got the job would make it risky.

Vickers, whose job application is his commission’s report, is ideal on paper. He knows about banking and he is a renowned economist, though not a macro-economist. He is known to the chancellor. He would be a safe pair of hands.

And yet he would suffer, like King, from being seen as too academic. He made no great waves when chief economist at the Bank and was not happy there. He was a low-key director-general of the Office of Fair Trading from 2000 to 2005. Chairing a commission on banking is not the same as dealoing day-to-day with the detail of complex and volatile markets and the new regulatory landscape, which has been Tucker’s role in the years since the crisis.

Because of this, the bookies are probably right to have Tucker as favourite. He remains the one to beat. But a credible dark horse, a genuine outsider, might be better.