Sir Mervyn King: Who will reign when the king is gone?

His term as Bank of England Governor has more than a year left. But already, says Ben Chu, the race for the succession is on
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The Independent Online

Critics of the Bank of England say that the UK's monetary authority, with its ruling "court" and all-powerful Governor, is stuck in the Middle Ages. And as any mediaevalist knows, there were few more important questions than the identity of the next monarch. And so it is at the Bank.

The long reign of Sir Mervyn King as Governor is not due to come end until 30 June 2013, but already the whispers about who will replace him are intensifying and the various contenders, both inside and outside the Bank, are jockeying, in the manner of ambitious princes, for position.

In fairness, the Bank has not been entirely immune from the hand of modernisation. The previous Labour government promised that it would advertise for the Governor's job in an open process. The Coalition is unlikely to break from that commitment.

The decision on the succession will be made by the Prime Minister, advised by the Chancellor and the Cabinet Secretary, rather than the Bank itself. But Sir Mervyn is likely to be consulted on the choice of his successor. And the Coalition has a history of listening to the Governor.

Following Sir Mervyn's advice, the Treasury is dismantling the Financial Services Authority and transferring regulatory powers back to Threadneedle Street. Also, the Chancellor sided firmly with Sir Mervyn last month when the Governor was embroiled in a battle with the Treasury Committee on the subject of the Bank's oversight.

The last two Governors were chosen from within the Bank. Sir Meryvn was chief economist and his predecessor, Eddie George, appointed in 1993, was a Threadneedle Street insider. That would seem to put the leading internal candidate, the present deputy governor, Paul Tucker, in a strong position.

Andy Haldane, presently in charge of financial stability and acknowledged as one of the brightest minds at the Bank, has also been mentioned. But this would be a considerable leap for a man of just 44. Some see him as a more natural candidate – at this stage in his career – for deputy governor.

Yet there have been suggestions the Government might choose someone from outside the Bank to fill the top job, not least because relations between the Governor and the Treasury have cooled since Sir Mervyn refused to play a more active role in the credit easing programme. Lord Turner, the outgoing chairman of the Financial Services Authority, has his admirers.

"I think he's analytically stronger than Tucker" says one European central banker.

Another impressive figure in the running is Sir John Vickers who is felt to have done an good job chairing the Independent Commission on Banking.

But might a former banking poacher be the next head gamekeeper? It has happened before, and John Varley, the former Barclays chief executive, has been mentioned in connection with the top job. As the man who brokered the Merlin agreement on lending between the banks and the Treasury, Mr Varley has shown his political skills. What's more, he is rumoured to have turned down a high-profile chairmanship recently in order to keep himself in contention for the Governorship. His association with a contentious high street lender like Barclays might, however, prove too toxic.

Another former private sector banker with a better shot could be Lord Green, the former chairman of HSBC, who came through the 2008 crisis with relatively clean hands.

Or might the Government go for a successful industrialist? The name of Sir John Rose, the former boss of Rolls-Royce, has been put forward. Sir Mervyn expressed his admiration for Sir John in an interview last year and some argue that it would be a wholly good thing for the next Governor to come from outside the narrow world of economics and banking.

"The Governor doesn't have to be an accomplished academic or a banker so long as they are conversant with central bank issues," says one former monetary policymaker.

The appointment will be intensely scrutinised by the markets. The new Governor will not only continue to have a dominant influence over monetary policy, but will also control the impressive macroprudential policy toolkit that Sir Mervyn has assembled.

So when will we know? Sir Mervyn's appointment as Governor was announced in November 2002, seven months before he took up the post. If an outsider is chosen they would need to receive an extensive introduction into how the Bank actually functions.

That all points to an official announcement on the start of the selection procedure well before the end of the year.

No wonder those who would wear the crown are already staking their claims behind closed doors.