Race to be deputy governor of Bank of England 'still open'

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The two-horse race to succeed Rachel Lomax as deputy governor of the Bank of England remains open, Treasury insiders insisted last night, despite suggestions that the Chancellor now feels compelled to appoint Charlie Bean, the Governor's favoured candidate, in order to ease growing tensions with the Bank.

Mr Bean, currently the Bank's chief economist, is Mervyn King's first choice to succeed Ms Lomax, who is due to step down from the role on 30 June. However, Alistair Darling is a supporter of Paul Tucker, the Bank's executive director for markets, who the Treasury believes is better equipped to focus on the central bank's responsibilities for maintaining financial stability.

Both the Bank of England and the Treasury said yesterday that no final decision had been taken on the appointment, despite rep-orts over the weekend that Mr Darling had decided to appoint Mr Bean as a way of easing tensions with Mr King after angering Bank officials with proposals last week to appoint a group of experts who would advise the Governor on financial stability.

The Chancellor is set to make the appointment within days, with his speech at the annual Mansion House dinner a week on Wednesday seen as the latest possible moment for announcing the decision.

However, the continued delay in unveiling a new deputy governor will fan the flames of a rift between the Treasury and the Bank. One official at the Bank of England yesterday described Mr Darling's proposals for an expert committee on financial stability as "a bit odd", and the move took Mr King by surprise when it was unveiled in the House of Commons. Nevertheless, Mr Darling's advisers said yesterday that the Chancellor's focus was on improving the Bank's financial stability operations in the wake of the collapse last year of Northern Rock, for which the central bank has been widely criticised. "He wants to strengthen financial stability, though he wouldn't undermine monetary policy either," one insider said.

Both the Bank and the Treasury are believed to have agreed that calls from some parts of the City for the appointment of an external candidate with heavyweight banking experience should be ignored. The appointment of a Bank of England outsider would have enraged Mr King, though rejecting this option will do little to endear the Chancellor to banking executives.

Mr Darling is expected to brief the banking industry on his plans for financial regulation at a meeting with senior executives on Thursday. The briefing will include further details of the financial stability committee, which will include senior members of the banking community, which may help to ease City concerns over the deputy governorship.

While the meeting may also cover growing concerns about the competitiveness of the City of London compared with rival financial centres, Mr Darling hopes his appointment of an advisory committee on the taxation of multinational businesses will go some way towards appeasing his critics. This group is due to hold its first meeting today.

The Chancellor is also expected to receive within days an initial report from Sir James Crosbie on the effects of the credit crisis on the mortgage market. Sir James is trying to address the question of how mortgage providers can be persuaded to begin lending more freely once again.