Battle at the bank
A row over the appointment of a new deputy governor reflects growing tension over reform of financial regulation. By Sean O'Grady
Wednesday 04 June 2008
The memory of John Nance Garner, thirty-second vice-president of the United States, will forever be overshadowed by Franklin Roosevelt, whose deputy he was for two terms. Save, that is, for Garner's famous observation that the vice-presidency "isn't worth a bucket of warm spit".
Garner was an earthy Texan, so the quote may be bowdlerised, but it serves to sum up the futility of many a deputy's job. It is tempting, but wrong, to see the deputy governorship of the Bank of England in the same terms. Certainly, the Governor himself, Mervyn King, the Treasury, Number 10 and the Conservative opposition think that the post is more than a bucket of warm spit. In fact, if some accounts are to be believed, there's quite a scrap going on for possession of this particular bucket.
Rachel Lomax, deputy governor for monetary policy for five years, leaves the Bank at the end of this month. Despite the imminence of her departure, her successor has not been named, or even decided upon, according to the Bank and the Treasury.
That is odd. At the apex of the Bank's machinery for deciding interest rates, it is, arguably, the most important job in British economic policy.
Technically, the decision rests with the Queen, acting on the advice of the Prime Minister, and in consultation with the Chancellor. The Governor of the Bank has said that while he has no "veto", "I think the Chancellor would certainly not want to impose on me a candidate whom I could not work with".
The Bank says: "This is the deputy governorship for monetary policy, and it is essential that it should be filled by someone with a professional background in monetary policy. That is particularly important as the economy enters the most difficult period since 1997."
Given that, and Mr King's keenness on internal promotion, the Bank's chief economist, Charles Bean, is the obvious choice.
If Mr Bean does become deputy governor, he will be following the exact path taken by Mr King on his way to the top. But even though the personable Mr Bean's public pronouncements have reflected a pragmatic approach to policy, a sort of monetary rectitude tempered by common humanity, it may be that ministers are a little paranoid about having anyone who might be too "hawkish" on interest rates as we approach the general election. They might wonder about having someone as close as Mr Bean is to Mr King in that job. (Ironically, the relationship is sometimes said to mirror that between Mr Brown and Mr Darling).
More likely, perhaps, ministers have been dithering, reviewing candidates from within the Treasury and, possibly, outside it. Neither Mr Brown nor Mr Darling are known for their impulsiveness and, as with Mr King's reappointment earlier this year, they seem to be taking an unconscionable time. One Treasury aide said this week that "the idea of having a balanced team where there is someone with good City experience makes some sense". Mr Bean doesn't easily fit that description.
The situation has also been complicated by the fact that there are two deputy governorships, and the battle for the deputy governorship for monetary policy has also become a proxy for the battle for the deputy governorship with responsibility for financial stability. That position is not actually vacant. The incumbent is Sir John Gieve, a career civil servant with much Treasury experience. Sir John's has become a difficult tenure, as, to borrow another presidential catchphrase, he is where the buck stopped in the Northern Rock affair. Sir John's almost pitiful appearance before an aggressive Treasury Select Committee testified to that. However, Sir John shows no signs of resigning and he enjoys security of tenure as of statutory right until the end of 2010.
But Sir John has also fallen foul of the Shadow Chancellor, George Osborne. Mr Osborne is so keen to be shot of Sir John that he has suggested that Sir John be swapped to the monetary policy side, and replaced by a new deputy, probably parachuted in from the City. That is of a piece with the Conservative view that the role of the Bank of England in banking supervision needs to be basically restored, going further than the Government, the Financial Services Authority and the Bank itself did in their "tripartite" consultation paper, due to be followed up with a more definitive one later this month.
In a cheeky letter to Mr Darling, Mr Osborne called for someone "with significant experience of financial markets inside or outside the Bank" to replace Sir John. "At this time of turbulence in financial markets, and given the weaknesses that have now been exposed in the tripartite structure, I believe it is critical that we have someone with a real understanding of the City in this important job," Mr Osborne wrote.
That, however, may be tricky. The Government has announced the appointment of individuals as either "Deputy Governor (Monetary Policy)" or "Deputy Governor (Financial Stability.)" Removing a governor or deputy governor is probably beyond the reach of the Shadow Chancellor. The 1998 Bank of England Act says the Bank, with the consent of the Chancellor, may remove a person from office if it is satisfied that he has been absent from meetings of the Court for more than three months without its consent; or that he has become bankrupt; or that he is unable or unfit to discharge his functions as a member. The legislation isn't clear on whether a reshuffle of deputies is covered by those criteria.
Recently, another possibility has arisen. The latest notion is that the Bank's guru on financial markets, Paul Tucker, either be made Deputy Governor for Financial Stability, with Sir John making way, or that he be made Deputy Governor for Monetary Policy, strengthening the markets expertise in the Bank's ruling troika. Mr Tucker, a member of the Monetary Policy Committee since 2002, is the Executive Director for Markets, at the sharp end of the credit crisis. Thus he combines markets and monetary experience. But, like most compromise candidates, he would also satisfy no one.
Some at the Bank profess themselves bewildered about the coverage of the battle for the Bank's bucket, while the Treasury says there is "nothing in it, really". Yet the bucket, in reality a central role in the economic life of the nation, is still lying there, more like Richard III's crown on Bosworth Field than any rusty old spittle-filled pitcher, the power waiting to be seized. Surely that's worth fighting over.
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