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November 15, 2012 7:25 pm
There are few more important tasks facing George Osborne than the selection of the next governor of the Bank of England. Having conjured a central bank with vast new powers over the financial system, the chancellor must pick someone capable of running the leviathan he has created.
The next governor must knit together a new institution that has absorbed many functions from the old Financial Services Authority. The successful candidate must articulate numerous new responsibilities and implement them. This must all be done at a time of continuing financial peril. The banking system remains fragile and the need for further recapitalisations cannot be ruled out. The decisions made now will shape the next decade in the City and beyond.
The Financial Times has not traditionally commented on the choice of BoE governor. Partly, this is because the selection process has traditionally resembled more a coronation than a competitive race. Sir Mervyn King, for instance, emerged in 2003 from a shortlist of one.
However, the decision to have a shortlist means that there is at last a formal field from which to pick. This and the importance of the decision impels us to state our preference. We would choose Paul Tucker, the deputy governor in charge of financial stability.
There is no perfect candidate on the shortlist. Sharon Bowles, the high-profile Liberal Democrat Euro-MP, has engaged vigorously with policy. Sir John Vickers is a distinguished economist whose inquiry has shaped important banking reforms. Lord Turner is a versatile public servant with a cutting-edged intellect. But none of the above possesses the all-round experience of Mr Tucker. As a BoE lifer he has overseen all the key areas the next governor would have to deal with: monetary policy, prudential supervision, macro-prudential regulation and international markets.
The only credible alternative would have been Mark Carney, the governor of the Bank of Canada. But he declined to put his hat in the ring and a foreigner would have been a controversial and difficult choice. True, Mr Tucker cannot claim to be a new broom. He occupied senior positions before and during the crisis and must share some of the blame for its spotty performance, especially in the failure to understand the risks involved in growing bank leverage.
But it is precisely because the BoE is facing such sweeping change that an insider is a better choice. The next governor’s task is as much to make the BoE do what it is supposed to do as to determine what that should be, which has largely already been decided.
The skills needed to steer the Old Lady into its new roles are managerial as well as intellectual. Even if the BoE appoints a chief operating officer to handle day-to-day management, as it now wisely intends, having a governor with intimate inside knowledge of Threadneedle Street would be a great benefit.
Of course, Mr Tucker must prove that he is his own man – unafraid to revise his predecessor’s views or to resist pressure from No 11 Downing Street when required. Given the buffeting the markets may deliver, he must defend the BoE’s independence against all-comers while maintaining co-operative relations both with Westminster and the City. Mr Tucker’s chummy email exchange with Bob Diamond, the former CEO of Barclays, was hopefully an aberration, not a guide to future conduct.
At times of peril the pressures on the governor can be extreme. Sir Mervyn’s relationship with the last Labour chancellor, Alistair Darling, was notoriously prickly. His relations with leading bankers have been even more fraught. In the short term, the atmosphere is unlikely to improve, given the polarisation of opinion around bonuses and the role of banks.
If the Old Lady is to function better in its new supersized form, decision-taking must become more transparent and there must be room for dissidents. Mr Tucker can prove his independence by strengthening the court – and turning it into more of a conventional board holding the executive to account. This should not, however, extend to second-guessing of policy, where differences should be resolved within the central bank’s committee structure.
Finally, the new governor should make room for intellectual free spirits, such as Andrew Haldane, the BoE’s highly creative director in charge of financial stability.
There is no simple solution to Mr Osborne’s conundrum. But at a time of great risk, there is much to be said for opting for the safe solution. Mr Tucker is the best bet.
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