Why reform must outlive scandal at the Bank

COMMENT

Eddie George was undoubtedly braced for banking collapses, international fraud scandals, currency crises and rows over monetary policy with the Government when he took over the hot seat of the governorship of the Bank of England. What he did not bargain for was an old-fashioned tabloid sex scandal and a new nickname for his employer, the Bonk of England. Now he has to limit the damage as best he can. It will not be easy, as the sniggering and bad jokes spread round the City.

The first question, if there is to be a political row, will be where to put the blame, apart of course from the immediate culprit, Rupert Pennant- Rea himself. Should the Bank have spotted the problem and ejected him earlier? Or was there nothing it could sensibly have done?

The fact is that the Bank of England's best defence is one it cannot possibly use for fear of compromising its own relationship with the Government. It is that Mr Pennant-Rea's appointment was imposed on the Bank in a last- minute rush by Downing Street, as a condition for the Prime Minister's agreement to the promotion of a Bank insider, Eddie George, to the top job.

It is hard to be sure from this distance whether, if more had been known about his lifestyle at the time, it would or should have disqualified him from the job. But if a mistake was made in overlooking possible future problems, it was not by the Bank, which had rather less to do with the appointment than it would have liked. Rather, it was made by John Major and Baroness Hogg, the Prime Minister's then adviser, who is credited with playing a critical role in the decision.

The political priority at the time was to find an outsider to counterbalance Mr George, who the Government saw as too headstrong and dominant over his senior colleagues to be trusted with the governorship without some external restraint. Mr Pennant-Rea was Sarah Hogg's last-minute solution to the problem. He had 24 hours to decide whether to take the job.

The new deputy governor, it seems safe to assume, will be appointed in a less pre-emptory way, and only after a period of discreet vetting. When Mr Pennant-Rea got the job, Mr George was in no position to argue with the choice, since he was unsure whether he himself would succeed in his bid for the governorship. Circumstances could hardly be more different now. Mr George has established his credentials with the Government as an essential part of the Ken and Eddie double act, which gives him more influence over monetary policy than any Bank governor in living memory.

Whether the new candidate comes from inside or outside the Bank, Mr George will certainly have a veto and may well be allowed to make his own choice of deputy. The odds are against an insider, since there are still strong suspicions that the other executive directors are too much under Mr George's thumb. There will be real costs if the reforming mandate that Mr Pennant- Rea was given - and the momentum that he had begun to generate - is now lost.

The most sensible place to look outside will be at a senior but probably not the very top level in a financial institution or even an accountancy partnership. The ideal solution would be to find a new deputy with practical business experience to take on a chief executive role at the Bank, complementing the Governor's command of monetary policy and the wider political agenda.

There is no question that the Pennant-Rea affair will damage the standing of the Bank in the City, at least in the short term. In the same way that the integrity of the judicial system is threatened by revelations about the private life of judges, so the authority of the Bank is at risk from the last two days' disclosure. Central bankers, after all, are meant to be fanatics about inflation and to go to bed with the latest monetary statistics.

It is not as if the Bank does not already have other problems on its plate. It is not yet out of the wood over the Barings crisis, and the pressure for its supervisory functions to be taken away continues to build. The next 12 months will also provide a critical test of how robust the new arrangements for imposing inflationary discipline on the economy through greater transparency are.

So what happens next to the Bank does matter. In itself, yesterday's resignation says nothing about what will happen next. But to the extent that it leads to any shift in the balance of power, either within the Bank or between itself and Downing Street, the ramifications could yet outlive the sensational manner of the deputy governor's going.

Humility and a new boss at the Pru

The actuaries must have been crying into their beer last night in Holborn. The monopoly of top jobs that number-crunchers traditionally enjoyed at the big insurance companies has been crumbling in recent years. Yesterday the mighty Pru dealt them another blow with the appointment of Peter Davis (a publisher, for heaven's sake) to the hotseat previously occupied by the considerable figure of Mick Newmarch.

Of course, Mr Newmarch himself was not, strictly speaking, an insurance man, having risen through the investment side of the business. However, he had spent almost 30 years at the Pru, man and boy, before he moved into the chief executive's suite. Mr Davis by contrast is the first outsider in history to run the Pru. It is a bold - and necessary - move by the company, which, with Mr Newmarch's abrupt departure and Sir Brian Corby's impending retirement, stands to lose almost 80 years of insurance experience at the top.

The appointment of the former Reed boss was warmly received by the City yesterday, reflecting both his reputation as an effective manager and the way in which the insurance industry is changing. The Pru could have opted for the soft choice of a safe pair of grey insurance hands to follow the flamboyant Mr Newmarch. Mr Davis is too powerful and dynamic a figure to let the company coast. Once he has learnt the business, he will direct the destiny of the Pru, for better or worse, rather than letting the group be swept along by the changing tides in the industry.

The public confidence in the probity and competence of the industry has been shaken by the mis-selling of pensions scandal. The Pru, as market leader, has an important role - and a big interest - in reversing this trend. Mr Davis's reputation as a marketing specialist should serve well in this respect. The company gave a first welcome sign of new-found humility with yesterday's results, admitting that provisions against pensions mis- selling had been raised, despite Mr Newmarch's belligerent assertions that the Pru had done no wrong. About time.

News
people
Sport
FootballGerman sparks three goals in four minutes at favourite No 10 role
News
Rumer was diagnosed with bipolarity, attention deficit hyperactivity disorder and post-traumatic stress disorder: 'I was convinced it was a misdiagnosis'
peopleHer debut album caused her post-traumatic stress - how will she cope as she releases her third record?
Sport
A long jumper competes in the 80-to-84-year-old age division at the 2007 World Masters Championships
athletics
PROMOTED VIDEO
Sport
Radamel Falcao was forced to withdraw from the World Cup after undergoing surgery
premier leagueExclusive: Reds have agreement with Monaco
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvHe is only remaining member of original cast
Life and Style
Walking tall: unlike some, Donatella Versace showed a strong and vibrant collection
fashionAlexander Fury on the staid Italian clothing industry
Arts and Entertainment
Gregory Porter learnt about his father’s voice at his funeral
music
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
tvHighs and lows of the cast's careers since 2004
Life and Style
Children at the Leytonstone branch of the Homeless Children's Aid and Adoption Society tuck into their harvest festival gifts, in October 1936
food + drinkThe harvest festival is back, but forget cans of tuna and packets of instant mash
Sport
Lewis Hamilton will start the Singapore Grand Prix from pole, with Nico Rosberg second and Daniel Ricciardo third
F1... for floodlit Singapore Grand Prix
New Articles
i100
Life and Style
Couples have been having sex less in 2014, according to a new survey
life
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam