Has Carney really got the golden touch?
The new Governor of the Bank of England has been universally welcomed – but not by Ben Chu
As a political conjuring trick, George Osborne’s unexpected announcement this week that Mark Carney will replace Sir Mervyn King as the Governor of the Bank of England next year was an unmitigated triumph. The Fleet Street pundits and the City wallahs were united in agreement that the Chancellor had pulled of a coup by persuading Mr Carney, the 47-year-old Governor of Canada’s central bank, to apply for the job.
Here, we were told, was a trained economist, a respected regulator and a new broom to sweep the dusty corridors of Threadneedle Street clean. But the most attractive part of the CV was Canada’s impressive economic record in recent years, attributed to Mr Carney’s skills at the central bank.
The country waltzed through the thickets of the global economic crisis of 2008-09 with barely a scratch. Its banks, which were also under the supervision of the monetary authority, did not need bailouts. Not since General Wolfe captured the Heights of Abraham from the French in Quebec have Canadian feats so gripped the British imagination. But as any sensible investor knows, one should never buy at the top of the market. And Mr Carney’s reputation now seems to reside on a vertiginous precipice.
Canada indeed coped well with the 2009 global bust, experiencing the shallowest recession of any G8 country thanks to conservative macroeconomic policies in the preceding boom. But that was more due to the traumatic debt crisis of the 1990s than any inspired monetary activism by Mr Carney. A natural resources boom, which lifted Canadian commodity exports, has helped the country recover strongly this time around, too.
As for the robustness of Canada’s banks, that also owes more to the 1990s crisis than anything that Mr Carney can claim credit for. Politicians put shackles on lenders after they went bust two decades ago after making bad loans. This ensured domestic banks could not join the irresponsible financial party that kicked off on both sides of the Atlantic in the 2000s.
And what of Mr Carney himself? Like the present governor he has made supportive noises about the global “Occupy” protests suggesting a social conscience. Yet that did not stop him holding out for a hefty pay rise on his present salary for accepting the Bank of England job. His remuneration will be £624,000 a year, against Sir Mervyn King’s £305,000. Even allowing for the fact that Mr Carney’s pension is less generous, that still amounts to a significant payday. Mr Carney will take British citizenship to show his commitment to Britain. Yet he still insisted on a five-year term, rather than the eight that the successful candidate was supposed to serve. Mr Carney will also be keeping his position as chairman of the G20’s Financial Stability Board (FSB), which co-ordinates global banking reform.
The Governor’s chair – already seen as too big for one person to handle –will thus be filled by a part-timer. And when it comes to banking reform Mr Carney looks like the status quo man. Much has been made of an attack he attracted last year from Jamie Dimon, the boss of JP Morgan, for his attempts, as FSB chairman, to force banks to hold larger capital buffers under the new “Basel III” capital rules.
This, some suggested, shows Mr Carney’s steadfastness in the face of a hectoring financial lobby. Yet the arguments about Basel are really a banking establishment civil war. Even under its toughest interpretation, Basel allows the banks to run with extremely modest capital buffers. It is telling that Carney’s former employer, Goldman Sachs, leapt to Mr Carney’s defence when he was savaged by Mr Dimon.
When the Bank of England financial stability director, Andy Haldane, argued in September for a truly radical new approach to banking reform, he received a petulant rebuke from Mr Carney. The Canadian has also aggressively attacked the US “Volcker Rule”, which will prevent American investment banks playing the global capital market casino, in strikingly similar terms to the banking lobby.
Sir Mervyn has been a powerful advocate of splitting up lenders into their retail and investment arms to protect taxpayers from future bailout costs. Mr Carney, by contrast, is intensely relaxed with the so-called universal banking model.
The Canadian Mounties always get their man. Yet we will now have to wait seven months to find out whether the man Mr Osborne delivered is the governor the country needs.
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