After the Carney-val, a less independent Bank of England?
Mark Carney, yet to set foot anywhere near the Bank of England, appears to be a walking one man monetary miracle messiah. Ed Balls supports this George Osborne decision. David Blanchflower supports Carney. So does Alistair Darling.The thoughtful Conservative MP Andrea Leadsom even threatened to “jump up and down” with excitement.
There has been not a squeak of complaint about the appointment of the most highly respected international financial diplomat from Canada as Britain’s chief central banker.
Yet past unchallenged consensus in British banking has tended to end pretty disastrously.
So let me step into the breach. I’m conscious of the fact that Mr Carney was spared any real press scrutiny pre-appointment because he was not a declared candidate.
You’ve already heard how brilliant he is, what a great communicator he is, how Canada is a model for banking sanity and fiscal prudence. Well, here are some questions raised by his appointment.
1. Never can a governor of the Bank of England have been appointed in this way.
His relationship with the chancellor was founded on George Osborne’s dogged, and repeated pursuit of his signature. How independent will he be in plausible difficult decisions over reversing QE, tweaking the inflation target?
2. Mark Carney is an advocate, in fact the pioneer, of outlining, in advance, a path for future interest rates staying low. Governor Carney pushed it in April 2009, the US Federal Reserve copied him two years later.
This approach known as the “conditional commitment” in theory helps keep longer term interest rates down. it has been strongly rejected by the current Bank of England governor, when asked last year: “I think it’s very dangerous to try and make a commitment because to lock in monetary policy now for two years does not seem to me particularly sensible… we’ve always been deeply reluctant to make statements about where bank rate will go …”.
Low rates until 2015?
Would he back a pre-announcement of low interest rates until, say, 2015?
3. The Bank of Canada does not have a genuine monetary policy committee, senior bank officials decide “by consensus”.
There is no vote, and there are no outside experts as members. Is this a direction of travel for the Bank of England?
4. The open recruitment process championed by the chancellor, was, at best, sidelined, at worst a sham. How many other candidates would have emerged if they were told the term of office was not fixed at eight years, but instead, negotiable?
5. Canada has no serious investment banks, and nothing with a balance sheet that exceeds that nation’s GDP. And whatever his contribution to Canada’s stable financial system, the challenge in Britain is to cleanse a broken banking and monetary system. Has he any experience of that?
6. He will continue as chairman of the Financial Stability Board.
Will he be a part-time governor?
In his press conference on Monday (again no chance for British press to question him) he mentioned moving to Bank of England to help solve the crisis in Europe, reform of the global financial system, the importance of the City, and not a great deal about the British economy, and nothing about inflation. Is he going to be a part-time governor?
7. As FSB chair (since last year) he is tasked with implementing Basel III capital rules for banks.
It is conceivable, that as BoE governor, and chief British bank regulator, he might want to attack or further delay Basel III. Indeed the Bank of England’s own banking director has suggested this, promoting an intriguingly timed public argument between the incoming Governor and the Bank of England’s popular public intellectual Andrew Haldane. See this Euromoney article.
Of course, other central bank governors have managed this potential conflict before.
8. Leaked Wikileaks cables from US embassies paint an intriguing picture of Carney – a “good contact”.
‘Typical G-20 disappointment’
At the post Lehman 09 G20 meeting the Canadians argued for a larger stimulus (2.5 per cent of each nations GDP) than was finally agreed. He privately, according to this cable expressed to US diplomats that a G20 meeting in Brazil was a “typical G-20 disappointment,” with “posturing and adolescent requests” from the major emerging economies.
He also in 2008 predicted for the US a relatively short — though painful — recovery period because it would write off assets, recapitalize, and allow companies to go out of business.
The leaked 2008 cable also says “Carney stated that Canada’s mortgage market was strong due to strong federal regulation and the fact that most mortgages were fixed rate and were underpinned by significant down payments or mortgage insurance from a government-sponsored agency”. As I have written on this blog before Mervyn King has been very much against these types of mortgage guarantees. Will he advise them for Britain?
9. Does he really have political ambitions in Canada? It is the gossip in Ottawa and Toronto. A prime ministerial run, no less. Then again, central banking technocrats have been taking over power in Greece, Italy etc. if he sorts out the British economy, and manages to get that passport, perhaps he won’t be allowed to leave in 2018.
None of which is to say he wasn’t the best candidate. But his appointment is not just a managerial change. There are medium term policy implications.
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