Never quite one of them

profile; Howard Davies: Stephen Fay on an independent spirit whose new job is to impose harsher discipline in the City

Howard Davies, the man whose new job is to see that the City of London behaves itself, is spending the weekend in the company of fellow members of one of the two clubs he lists in Who's Who. These are not, as you might expect of a man who was deputy governor of the Bank of England until a week ago, Brooks or the Atheneum. Davies is playing for Barnes Common Cricket. His other club is Manchester City Supporters.

He holds a position that guarantees him a place in the Establishment, but his instinct is to reject full membership. This is, in fact, one of the best qualifications for his new role as London's super-regulator. His job is to prevent banks like Barings collapsing, to stop crooks selling shares, and to make sure insurance companies do not mislead customers. No one else in the global financial markets - in New York or Tokyo - has such broad responsibility, nor so much power.

Davies was in Buenos Aires last Monday when he was offered the job. After hurried consultation with the bank's governor, Eddie George (who was not at all pleased), he accepted Gordon Brown's offer. By Thursday the end of Davies's brief term as deputy governor in Threadneedle Street was signalled by his removal from the list of senior employees eligible for the bank's tickets for the Royal Opera at Covent Garden. He didn't mind. He was a loyal number two to George and earlier this month he had argued persuasively against the creation of the position he is now about to take. But he relishes the idea of running his own show.

HIS passport says he was born on 12 February 1951 in Prestbury in leafy Cheshire, which is strictly true because his mother had been transferred there from St Mary's Hospital, Manchester. But he finds it annoyingly misleading because he is a Mancunian, bought up in Blackley and educated at Manchester Grammar School. His father, who had trained as an architect, worked for breweries around the city, keeping their pubs in good order. His son inherited his devotion to Manchester City.

There is not much evidence of the accent any more, but Davies's passion for the city is unabated. His mother still lives in Rochdale, and Hazel Sykes of the Manchester Youth Theatre, where the young Davies played Malcolm in Macbeth, says that he has kept in touch with his roots. (He is a patron of the theatre now.) He was a scholarship boy at Manchester Grammar, younger than the other boys: "I sometimes struggled, but always in the top class." An all-rounder, he founded the school newspaper and was considered clever and presentable enough to be sent round the world raising funds for the school. His teachers expected him to become a journalist when he left for Oxford.

There he went on acting. (His favourite part was the lead in Penny for a Song, by John Whiting, the brief white hope of English dramatists before John Osborne.) When he graduated Davies himself also expected he would become a journalist. So did his friends Peter Stothard (now editor of the Times) and Duncan Campbell-Smith (who worked for the Financial Times and the Economist); but the BBC did not even reply to his application. The Foreign Office did, so in 1973 Davies became a diplomat.

His education had sharpened his wit. From his acting, he had learnt about role playing; and the journey from Manchester to London had moulded his ambition. He never forgot where he came from, but that was a strength and not a burden. He could behave like an outsider in London without anyone really minding. Few other people could have got away with moving on from one good job to another with such unseemly haste as Howard Davies did.

He grows restless, he says, operating in someone else's intellectual framework. His Foreign Office job - he was private secretary to the ambassador in Paris - suggested a secure future, but Davies was not an admirer of the FO, thinking it not sufficiently alert to Britain's commercial interests. At this stage in his career, Davies applied to join the Islington South and Finsbury Labour Party but was rejected. Old Labour insisted that members should belong to a trade union, but Davies had resigned from the First Division Association. The union had vigorously opposed a critical report into the FO, which Davies himself thought first class.

Interested in management, Davies applied for a place at the London Business School. The FO countered with an offer of a secondment to the Treasury; and in 1976 he accepted that. "I think everyone should spend a a few years in the Treasury as part of their education; it teaches you to keep your hand on your wallet," says Davies. But he took time out to attend Stanford University business school in California as a Harkness Fellow, and, as soon as his contract permitted, he left the Treasury to become a management consultant with McKinsey & Co in 1982. He thought then his long-term future probably lay in running a business.

Although Davies had intended to make some serious money, he could not resist the temptation to return to the public service in 1987 and run the Audit Commission, a government body that investigates local authorities and the health service to see whether they are delivering value for money. Davies enjoyed baiting autocratic chief constables, and flashy doctors and surgeons. His mischievous streak was starting to show.

After five years there, Davies moved on to the bosses' trade union, the Confederation of British Industry, where he began to make a public reputation (Woman's Hour listeners voted him one of the world's 50 most desirable men). He stayed until the deputy governor of the Bank of England, Rupert Pennant-Rea, was exposed by a woman scorned, and Davies took his place in 1995. His rise and rise had been remarkably swift - perhaps too swift. But he rejects the image of himself as a young man in a hurry: "In a perfect world, I would be 56 now, not 46 and I would have done all my jobs for longer. But they really have come about by combinations of accidents."

He nearly looked the part of deputy governor. Playing football (with John Birt of the BBC and Greg Dyke of Pearson TV among others) and cricket has kept him neat and slim, but a tonsure of short silver hair lends him some gravitas. "I'm gradually catching up with my appearance."

Though they are both independent spirits, Eddie George and Howard Davies got on well at the bank. "Davies didn't touch his cap or pass the port," says one of his colleagues. That others had done so tells you a lot about the Bank of England. Laughter is rarely heard echoing down its corridors; and a talent for nit-picking was never an impediment to promotion.

A colleague provides a study of Davies's management style. He arrives late at a noisy staff meeting, takes his seat and says nothing. Everyone is anxious to score points, but, as they speak, Davies looks at each of them until they feel a little foolish and fall silent. Finally, no one has any more to say. Then Davies says, smiling, "This is boring," and produces a solution they all accept. Rather than making him enemies, as it might if he had been charmless, this endeared Davies to his new colleagues. "He's been so clear, so quick and so likeable at the same time. It's been a sharp but enjoyable ride," says one of them.

Davies, who was paid pounds 184,083 last year, harboured heretical opinions (he is against the single currency, for example), but kept quiet about them in public. Although he was tipped to follow Eddie George, he never believed he could succeed him directly, especially after the election and the Chancellor of the Exchequer's announcement that a second deputy governor would be appointed once the bank took responsibility for fixing interest rates.

He was in charge of banking supervision, and was expressing the bank's view when he wrote in its latest Quarterly Bulletin - published just 11 days ago - that banks are special and should be regulated separately. Less than a week later, he had accepted a job in a new regulatory body that will end the separate status of banking supervision and strip the Bank of England of one of its principal activities.

This proves no obstacle to his intellectual justification of his new position. There is a joke in it, too: "I take a third of my job with me, and two people will replace me - a point about my job that my wife has made frequently." (Prudence Keely, his wife and the mother of their sons, aged 12 and 9, works as a producer for Channel 4 News.)

Regulating the City is like pulling teeth; the victims have usually resisted it for as long as possible, and it proves painful when it finally happens. Money men have always claimed that self-regulation is the best regulation, despite overwhelming evidence to show that the people who benefit least from this are the customers whom the regulators are supposed to protect. The mis-selling of personal pensions has damaged the reputation of the insurance industry; Peter Young's huge losses in dubious investments at Deutsche Morgan Grenfell harmed the asset-management sector; and the Bank of England's credibility has sunk with each successive bank failure - Johnson Matthey, BCCI, Barings.

Davies's appointment to the Securities and Investment Board (he is looking for a new title and a new office), and the legislation to give it legal backing, mark the end of self-regulation. Davies's organisation is unique: the first anywhere to regulate the whole of a financial services industry. "That's good and bad," he says. "What's bad is that there's nowhere I can get on a plane to and see a working model. What's good is that it's fun to be ahead of the game."

If he does well, Davies will be feared and respected by the grandest bankers and financiers in the world. But hardly anybody else will know it - because regulators are judged only by their failures, not by their successes. If a great bank collapses or someone gets away with an outrageous scam, Davies will come under a barrage of hostile criticism. It will be an unusual experience. For the first time in his life, Howard Davies might discover what it is like to be unpopular.

New regulation, Business