Suddenly it looks so obvious. You have a tough job, so you go for the best person in the world, jugding by their record, for that job. And you persuade them to do it.
Which member of the Group of Seven large developed economies came through the last crisis in best shape? The answer is Canada. It avoided the unsustainable housing boom that bedeviled its neighbour to the south. It got its banks through the crisis without any failures. And it has staged the strongest economic recovery. A decent part of the credit for that must go to the sound monetary and regulatory policies of the Bank of Canada, and the person who was running it was Mark Carney.
If this appointment is a celebration of Britain’s willingness to scour the world for people to run our great institutions – from football clubs to car companies – it is also an acknowedgement of our failures. In central banking this is in theory the third most important job in the world, for the US Federal Reserve and the European Central Bank naturally rank higher. But in practice it is arguably more interesting, partly because it is more wide-ranging, combining bank supervision with monetary responsibility, and artly because London’s central role in international finance gives it global significance.
Anyway in UK terms it is massively important for one huge reason. The weakness of the Bank of England made the last fianncial crisis much worse than it otherwise would have been. We had excessive monetary growth, which helped fuel the property bubble. We had weak control over the banks, resulting in two of the largest and several small ones needing a rescue. And we failed to control inflation. Then in the crisis, we did just about cope – but only just.
Not all of the responsibility for that, of course, goes down to the Bank of England, for it was not responsible for the fiscal failure and only partially for weak banking supervision. But the harsh truth is that the many talented and honourable people at the top of the Bank did not mesh together as a top team when it mattered most. So when you have great individual players but a team that loses the big matches you do what football clubs invariably do: you scour the world for the best new manager.
So what should we expect from the new manager? Well, the starting point is that it is important to recognise that there is potentially a great team at the Bank, including the main internal candidate for the job, Paul Tucker. You need a balance of skills in any organisation and anyone who knows the top people at the Bank would I think acknowledge that most of that balance is there. There have been complaints about a culture of excessive deference, but hey, Canadians don’t buy deference so that won’t be a problem.
What has not been working well has been the functioning of the Monetary Policy Committee, the core role of the Bank, with some outside members sounding off in a pretty personal way – not playing as a team at all. If the MPC had done a good job on inflation this might not matter but it hasn’t.
A further concern will be how the Bank copes with its expanded role, taking on supervision of the banking system from the Financial Services Authority. The fact that the old structure was a disaster does not mean the new one will be much better. What is needed is a quite, calm orderly management job.
And finally, let’s not forget that the UK faces a huge economic challenge: how can the new Governor nudge the financial system to serve the economy better in the face of a severe and continuing fiscal squeeze?
Interesting job: you can see why Mr Carney, notwithstanding indications he was not interested, was prepared to have a crack at it.Reuse content