Can anyone run the Bank of England successfully?

 
Bank of England

The Bank of England is not an institution in crisis (or, at least, not as far as I can tell).

It has of course been criticised for not providing any decent warning or pre-emptive evasive action, as banks grew to become lethal weapons of mass destruction and markets become dangerously over-heated, in the years before the great crash of 2007-8.

But few would argue that its performance was as lamentable as that of the Financial Services Authority in the comparable period.

If it has committed a crime, it is perhaps one against good manners: it, in the person of its governor, Sir Mervyn King, has never made an unqualified apology for its sins of omission (Sir Mervyn has said that "with the benefit of hindsight" the bank got it wrong - which seemed more a request for forgiveness than an admission of failure).

That said, it is pretty difficult not to see the Bank of England as an admirable and impressive institution.

What I find is that it employs a significantly higher proportion of brainy, independently minded and impressive people than most comparable public sector and public service institutions.

It is slightly horrifying, arguably, that among the 26 people it lists as its top executives and policy makers, only one is a woman (who runs a department, human resources, where women are often in charge), and there is not a single member of an ethnic minority.

You don't have to be a diversity obsessive to think that the Bank is not fishing in the deepest and widest talent pool.

Even so, few of the 25 middle-aged white men who run the Bank would be seen as mediocre in an intellectual sense - and it is hard to spot the same proportion of competent bosses or leaders in most private-sector or public-sector organisations.

So the Bank of England ain't bust, though you might be forgiven for thinking that the chancellor thinks it may be - in that his efforts to recruit a Canadian central banker, Mark Carney, to replace Sir Mervyn went way beyond a conventional trawl for candidates.

George Osborne tells the BBC's Robert Peston why Carney was the right choice

When I interviewed Mr Osborne yesterday, he was explicit that Mr Carney was his top choice from the outset. The chancellor has been chasing Mark Carney since February; he kept chasing even after Mr Carney told him privately and in public that he would never do the job; and in the end Mr Osborne agreed to cut the term of office for Mr Carney from eight years to five, and pay him what looks a good deal more than what Sir Mervyn received, even after adjusting for Sir Mervyn's fabulous pension arrangements.

To digress for a moment, there seems to be a nuance of difference between the Treasury and the Bank of England on whether Mr Carney is being more handsomely remunerated than Sir Mervyn: Mr Osborne told me that there is an equivalence between Mr Carney's package and Sir Mervyn's; the Bank of England said comparing their rewards was a case of apples and pears, and that Mr Carney would be doing a bigger job, given that the Bank is getting more responsibilities on his watch (more on this in a mo).

Here is the big point: it is impossible to escape the conclusion that Mr Osborne wants to give a bit of shake to the Bank of England's culture, and that one of the most important things about Mr Carney in the chancellor's eyes is that he is a proper outsider.

Rachel Lomax: Mr Carney has "unique depth of experience"

So what has Mr Carney taken on, apart from the challenge of reinforcing the good and burying the stuffy in the Bank's personality?

Well, he will have to integrate all those bank regulators and supervisors who are being forced to become Bank of England employees, as the Bank takes on responsibility for monitoring the health of individual banks. This in itself will be a significant management challenge (and for all Mr Carney's experience, the Bank of Canada, his current employer, does not do bank supervision).

And Mr Carney will have to create a whole new operation, the Financial Policy Committee, with statutory powers to prevent or gently deflate financial bubbles which - if left to grow unchecked - could wreak havoc (a big hello to the world we inhabit).

Then there is the small matter of making safe Britain's massive banks - the biggest in the developed world relative to GDP, with the exception of Switzerland's - without undermining their ability to support a British economic recovery which is not in any meaningful sense a recovery yet.

Oh and he also has a second precarious balancing act to perform: how to reinforce whatever economic growth can be generated, with money creation and exceptionally low interest rates, without either stoking up incipient inflation (which looks rather a remote risk at the moment, though who knows when and whether that will change) or undermining the credibility of the Bank of England's balance sheet (and therefore ultimately the integrity of sterling and the public finances).

Or to put it more starkly, when you look in the round at what Mr Carney has taken on, it is easy to see why he fled when originally wooed by Mr Osborne - because it is reasonable to ask whether any mortal can do this job.

 
Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    +1

    Comment number 172.

    "lordBanners
    Cdn Economic success was entirely due to Paul Martin's Econ strgy..

    That success was due to more than one player..and Carney was one of the major ones. For Martin, here is quote from today's Globe and Mail:

    "..former prime minister Paul Martin has been called on, time and again, to provide fiscal guidance for the U.K. government.."

    You can be sure he was asked about Carney.

  • rate this
    0

    Comment number 171.

    There's the small matter of the emergence of vitanomics - the revolutionary antithesis to economics. It's the new, the legacy less explantion of the economy subject with a radically different exposition of money and financing. Will it (vitanomics with its exposition of money) cause the ultimate financial crush? Any comments?

  • rate this
    +1

    Comment number 170.

    Cdn Economic success was entirely due to Paul Martin's Econ strgy who's best-before date expired few yrs ago,and co-incided with the plung back into Deficit & Debt.Notably Paul Martin inherited out-of-control Deficit & Debt,but handed over a $12 Billion surplus which evapourated in months.
    The man to be consulting is Deficit-Slayer Paul Martin.If you've ever heard the man speak you'll know why.

  • rate this
    0

    Comment number 169.

    Collective Industrial Western economic problem is with Living Above their Means, and the best person to cure that is a Responsible House-Wife/Homemaker. Economy - Economise ring any bells?

  • rate this
    0

    Comment number 168.

    What a silly question.
    The real question should be, can anyone change the entrenched self destructive attitude of Britain and Americans ruling aristocracy ?
    I might have said it would take a miracle to change their minds, but no.
    They believe in nothing but their own selfish ambitions.
    Truly they have embraced the motto 'do what thou wilt shall be the whole of the law'
    Corrupt.

  • rate this
    0

    Comment number 167.

    Is perspective being obscured by proximity? You want London to be leader of global finance despite 2008. You have just nabbed the G20's hero, Chairman of the planet's Financial Stability Board, as your central bank chief and more (under circumstances that preclude disputing him on anything without a deep career risk).

    You have gone from lagging the pack to the pack leader (if he is in the room).

  • rate this
    +1

    Comment number 166.

    JfH@163
    Liberating finance
    By rate-rise?
    400ch excuse wears thin

    No real 'solutions' without address of context

    "Capitalism", taken as "the system" which - under cover of Adam Smith's ideal, in mockery of Moral Sentiment - has for 200 years enshrined conflict of interest, is as such beyond 'rescue'

    We are treading water en route to Falls

    Time to make for dry ground: democratic self-direction

  • rate this
    +1

    Comment number 165.

    "Can anyone run the Bank of England successfully?"

    Well, based on the Mervyn King experience, yes, anyone can!

  • rate this
    -1

    Comment number 164.

    We must stop bashing the banks or we are in danger of London losing its global financial status. We must stop burdening them with onerous regulation & unnecessary capital controls which has now reached reckless overreaction territory. The biggest risk to banks is now gone - its deficient management & culture. I hope Carney will hand out rationale thinking & get banks supporting our economy again.

  • rate this
    -1

    Comment number 163.

    159.KH

    You don't seem to get it on the price of money.

    Capitalism cannot resolve its crisis (the debt fuelled asset bubble) without deflating the debt. Debt does not deflate itself; the only mechanism is the price of holding the debt for as long as this is zero to -ve for the big players then depression will drag on and on. To resolve capitalism's constipation the price of money must rise!

  • rate this
    +1

    Comment number 162.

    BOE has been/become very slow & reactionary on eg interest rate movements & in finding more effective ways of controlling inflation.

    BOE should become more of an independent think tank & less of ?? I must say I'm not sure anyone really knows what the BOE actually is or does

    BOE should set itself a target of finding best way of BOE advising govt on how GOVT can best control inflation

  • rate this
    0

    Comment number 161.

    Mervyn King and his Merry Men have been paid a fat fortune for their vision, wisdom and policy making. Seems they only achieved to put in place safeguards in a reactionary.

    Robert, can you tell us what Mr Carney's vision is, the deliverables and performance targets he has signed upto and when we see some tangible return for his appointment?

    If not, then I fear we have another empty suit.

  • rate this
    0

    Comment number 160.

    @159 There's a difference between low interest rates and zero interest rates. 2% is a low rate. 0.5% + QE is a zero rate. At zero interest rates the system ceases to work. Zero rates support asset values & make business balance sheets look healthier & enable indebted house owners to service their debt. Debt junkies get another fix. The men in grey suits want another debt fuelled boom.

  • rate this
    +1

    Comment number 159.

    JFH
    stop with this oxymoron
    the price of money
    why at very low interest rates are the amount of loans down?
    risk is high when spending is low
    total spending= total income
    demands for loans are down
    banks holding non performing loans
    have tightened lending criteria sensibly
    monetary policy will not extract the private sector
    from a balance sheet depression
    not at 5% or 0%
    raise fiscal stimulus

  • rate this
    0

    Comment number 158.

    I believe Carney is fleeing Canada before it hits the fan. Insulated from Economic Crisis they splurged "As If", and are now not much better off than those who did. Other point of contention is with BRICS and Developing World operating on a Gold Std while Industrial West did away with their Gold decades ago to create Wealth. It was Kadhafi's insistence on Gold for Libyan Oil which did him in.

  • rate this
    -1

    Comment number 157.

    Can the new appointee do something at the BOE, stop playing games, he'd better ask the chancellor. When will everyone stop pretending the BOE is independent. It is the governments bank, they are the only ones with an account there. Carney sounds good, but he's not played the in / out EU game yet. He may think QE is a ship, he tried to back off, he must be ballsy, coz he ain't stupid

  • rate this
    0

    Comment number 156.

    You can put Ken Dodd at the helm of the BOE and it would not matter, until property prices crash, nothing in 'Skint GB' is going to change.

  • rate this
    0

    Comment number 155.

    John_from_Hendon @154
    "as everyone knows"

    Your prudential "5%+" is doubtless 'out there', but on base-rate clearly 'some in authority' have more on their minds

    Just as 'they' might invite more thought on 'the present', my invitation - as ever - is for thought on our necessary tomorrow

    However violent, the oppositions here are 'bankrupt', singly & collectively, beyond rational embrace 'for all'

  • rate this
    0

    Comment number 154.

    131AfA
    Prudential monetary pricing - LOOK IT UP IF YOU DO NOT UNDERSTAND!

    The price of money (interest) reflects the risk of the investment. So when money is free-to-negative it implies that the borrower ought to be gold plated - but as everyone knows that this is not the case for our bankrupt banks then the price must be wrong and not prudential. Rather then -ve it should be 5+% at least!

  • rate this
    +7

    Comment number 153.

    What 148. SaintMungo said!

    How many former Goldman Sach's executives does it take to rule the world?

    Add your own punchline - bit whatever it is, the joke's on us and it isn't funny!

 

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