George Osborne has stunned the City by announcing that Mark Carney, the Canadian central banker, will replace Sir Mervyn King as the next Governor of the Bank of England.
Mr Carney, who had previously ruled himself out of contention for the job, will become the first non-British governor in the Bank’s 318-year history and will fill the most powerful non-elected position in the country.
The Chancellor announced that Mr Carney, who spent more than a decade working for the US investment bank Goldman Sachs, will serve a fixed five-year term, rather than the eight years that had been expected. The Bank’s Deputy Governor of the Bank, Paul Tucker, had widely been expected to be named as Sir Mervyn’s successor next month.
“Mark Carney is the outstanding central banker of his generation” the Chancellor told the House of Commons in a statement, adding that Mr Carney would bring the “strong leadership and external experience the Bank needs”.
He said: “Mr Carney is unique amongst the potential candidates in combining long experience of central banking, huge international credibility in economics, deep expertise in financial regulation and a first-hand experience of private sector financial institutions”.
The incoming Governor, as well as overseeing the Monetary Policy Committee, which sets interest rates and takes decisions on money printing, will also chair the Financial Policy Committee, which will be tasked with ensuring financial stability from next year.
Mr Carney told a news conference in Ottowa after the announcement that he was relishing the challenge and that he was “honoured” to accept the appointment. “I am going to where the challenge is greatest” he said.
The news was greeted with shock in the Square Mile, where Mr Tucker was widely seen as the red-hot favourite. “Surprise, huge surprise” said Peter Dixon an economist at Commerzbank “That was the one guy I didn’t have in the running, and it’s a slap in the face for the likes of Tucker.”
Analysts said that the appointment reflected the Chancellor’s admiration of the performance of the Canadian economy through the global downturn of 2008-09 and also the fact that no Canadian banks needed to be bailed out in the crisis. In Britain the authorities were forced to extend an estimated £1trillion to prevent the sector from melting down.
Sir Mervyn welcomed the appointment. ”He represents a new generation of leadership for the Bank of England, and is an outstanding choice to succeed me” he said in a statement. The Labour Party also gave the appointment a warm reception. In the Commons Ed Balls, the shadow chancellor, described Mr Carney as a “good choice, good judgement”.
Mr Carney, 47 is the youngest head of a central bank of any G8 country. After studying economics at Harvard, he took a masters and doctorate at Oxford. He spent thirteen years as an analyst at the US investment bank Goldman Sachs before being appointed deputy governor of the Bank of Canada in 2003. From there he moved to the Canadian finance ministry, where he was a deputy minister, before being appointed to his present position as head of the Central Bank of Canada in 2008. He is credited with helping to pull Canada safely through the global downturn.
Mr Carney is also the chair of the G20’s Financial Stability Board, which was established during the 2008-09 financial emergency to co-ordinate global banking supervision. In that role Mr Carney clashed earlier this year with the Bank of England’s highly-regarded Director for Financial Stability, Andy Haldane, on the question of how large the capital buffers of global banks should be. Mr Carney said last month that he thought that a speech Mr Haldane had given on the subject was “uneven”.
The Chancellor said that Mr Carney, a Canadian citizen, would apply for British citizenship. His wife, Diana, and four daughters already have joint Canadian and British citizenship. Mr Carney is expected to receive a salary of £624,000. This is more than double the remuneration of the outgoing Governor, but the Treasury said last night that the difference was largely accounted for by the fact that Mr Carney will not be enrolled in the Bank’s generous pension scheme.
In a BBC interview in August 2012, after initially being linked with the post, Mr Carney said that he was not interested. But Mr Carney is believed to have been persuaded by the Chancellor in person to apply. The two men have met at various international policy forums including the G20, the G8 and the World Economic Forum in Davos.
Mr Carney was selected by an interview panel that included the Permanent Secretary of the Treasury, Sir Nicholas Macpherson, and the two Second Permanent Secretaries, John Kingman and Tom Scholar. Also on the panel was Sir David Lees, head of the Court of the Bank of England. The panel put forward Mr Carney’s name to the Chancellor, who then consulted the Prime Minister and the Deputy Prime Minister before announcing his decision.
Other candidates believed to have applied for the post included Adair Turner, the Chairman of the Financial Services Authority and Sir John Vickers, who headed last year’s Independent Commission on Banking, and Lord Burns, the UK chair of the Spanish bank Santander.
Charlie Bean, another of Sir Mervyn’s deputies, alongside Mr Tucker, was due to step down at the same time as the Governor next year. The Chancellor announced yesterday that Mr Bean will now remain in his post for a further twelve months to ease Mr Carney’s transition. The Chancellor also said he hoped Mr Tucker would stay on at the Bank, despite missing out on the top job.
In his statement Mr Osborne praised the outgoing Governor, Sir Mervyn, for serving with great distinction through what he called “the most difficult period of economic policy making of the modern age.”
When the Bank takes on the responsibilities of the Financial Services Authority next year it would double in size. Mr Carney said yesterday that he was up to the challenge of managing the transition. “I can play a constructive role…in relaunching this institution with its new responsibilities, contributing to price stability, to financial stability and to ensuring that the rebalancing of the UK economy…is seen through over the course of the next five years” he said.