CANNY CARNEY
Banker stirs things up
During a lifespan of 321 years, the Old Lady of Threadneedle Street has treasured her dignity.
So at the Bank of England, to use her proper title, where the doormen still wear pink tailcoats and top hats, traditionalists can be excused for raising an eyebrow at the antics of Mark Carney.
“Nespresso. What else?” the governor joked to staff in an internal video at the end of 2014, as he sipped coffee and jested about his resemblance to the actor George Clooney, who fronts ads for the brand.
Carney stands out from his 119 predecessors in other ways: He’s the first foreigner to run the BOE, and previously led another central bank — Canada’s. The former Goldman Sachs Group Inc. investment banker was hired on a salary of $891,000, plus a $464,000 housing allowance, compensation that prior governors could only dream of.
Now, after spending almost two years revamping every corner of the organization, the task for Carney, 50, is increasingly becoming one of securing his legacy. That entails navigating the political minefield of a likely inconclusive election, ending six years of record-low interest rates and protecting the BOE’s reputation amid a criminal probe. He has until mid-2018 to do all that, having said he’ll serve just five years out of the eight offered with the role.
“It’s probably a good thing that from time to time, every 10 to 20 years, a senior outsider is brought in and the tree is given a good shake,” said Tony Yates, a former BOE official who left shortly before Carney joined in July 2013. “He’s done all this institutional reform, but one of the biggest risks is that the Monetary Policy Committee leaves interest rates too low for too long, or raises them too early.”
Hired after a cloak-and-dagger courtship by Chancellor of the Exchequer George Osborne, Carney’s arrival stirred a media buzz: His ride on the tube on his first day, and attendance at a music festival with his wife Diana, were newspaper fodder.
But on monetary policy, Carney initially stumbled when he replaced Mervyn King. He persuaded colleagues to employ a tool he first used in Canada, to link a pledge for low interest rates with labourmarket data.
Too soon, a job recovery was underway that required the BOE to recast his so-called forward guidance policy or risk stoking expectations of higher borrowing costs. Yates, who now teaches economics at Bristol University in England, found the whole episode “horribly botched.”
“Having decided that unemployment was a good thing to look at, unemployment behaved in a different way, as things do,” says Kate Barker, who was a BOE policy-maker for nine years until 2010. “I’m not really a big fan of forward guidance. I am a straightforward fan of painting a picture of the world and saying what you’ll do.”
A BOE spokesman said Carney’s policy gave greater clarity on interest-rate prospects to both consumers and businesses.
Less publicly controversial was Carney’s approach to institutional change. Taking over the BOE shortly after it regained a role as a banking supervisor, he soon discovered an organization described by its own staff as “hierarchical” and “slow-moving,” with more than 70 decision-making committees.
In March 2014, he unveiled a shakeup assisted by the consulting firm McKinsey & Co. that fused departments, created a new management layer, and came with a slogan that was soon on computer screensavers throughout BOE offices: “One Bank.”
Little has been left untouched in his whirlwind of change, from market operations to rate-meeting schedules to an overhaul of the library — a move that provoked a bout of resistance from staff a year ago. Last summer, the unthinkable happened at the BOE’s annual staff sports day: There was no cricket match for the first time anyone could remember.
Officials at the BOE, speaking anonymously because they’re not authorized to speak to press, describe Carney as bringing a more private-sector approach to management, combined with an openness to opinions — as he showed on whether or not to play cricket. Easing the blow for the old guard has been his trademark charm.
“He has managed the transition from the Bank of Canada to the Bank of England remarkably well and he has a good understanding of political processes,” says Bundesbank president Jens Weidmann, a colleague at the Financial Stability Board and at Group of Seven meetings. “On top of that he is a very sympathetic and humorous person.”
Observers of Carney also note a flip side: a temper that can come out of the blue. One official says people on the receiving end can feel like they’ve been tasered.
What Carney’s changes at the BOE haven’t done is erode the governor’s central role. The bank’s organizational structure now concentrates decision-making on a small coterie around him of the four deputy governors and Charlotte Hogg, the chief operating officer. That structure is known internally as GovCo, and was reflected in another part of the end-of-year video: the deputies’ heads superimposed on a singalong to Pharrell Williams’s Happy, according to people who saw it.
Less happy for Carney have been legal distractions for the central bank. Last year, the BOE fired its chief currency dealer, Martin Mallett, for internal policy violations amid a review into currency rigging, and it now faces a criminal probe into money-market auctions during the financial crisis.
The BOE didn’t comment on the specifics of Carney’s job for this story, and the governor himself is in a pre-election purdah, one which gave him the time to raise more than $130,000 in sponsorship for the London Marathon on Sunday.
That hiatus will soon end with an election on May 7 that will probably prevent any one party from governing on its own and give smaller parties the balance of power. Bargaining that could undermine the government’s budget credibility might force the BOE into an awkward position.
“If you had an outcome where there’s all sorts of horse trading to get legislation through and all that, which was leading to dangerous fiscal policies, there might well be a question mark whether Mark would feel that he would need to say something,” says Charlie Bean, who was a deputy governor under Carney until June Last year. “Being an outsider might make him feel more confident about doing that.”
For Adam Posen, an American who was a BOE policy-maker during the last coalition haggling in 2010, Carney should be wary of any such interventions.
“Central banks should stick to their knitting and stay out of politics,” he says. “It’s especially true in the time around an election and government formation.”
Such a path strewn with political eggshells provides an added complication for Carney as the BOE and counterparts around the world puzzle over how and when to withdraw emergency stimulus stemming from the banking crisis of 2008. If he gets it wrong, “he could get remembered for that rather than anything else he’s done,” said Yates.
One difficulty is that, unlike his foray into forward guidance, he may not have the chance to repair any damage from a misstep. One European central banker who knows Carney well says his real mistake so far has been to limit his tenure.
When the time comes, Carney may decide to stay at the BOE, according to Charles Goodhart, one of the MPC’s founding members.
“He initially said five years because he had at the back of his mind perhaps returning to Canada,” he said. “But I think the likelihood of him being able to step into a major role in Canada after five years in the U.K. may be less easy for him than he may hope.”