Start gun for Bank race

ONE of the most important decisions any Chancellor (with the Prime Minister) must make, is the choice of the next governor of the Bank of england.

The City and Britain’s financial services sector is the powerhouse of the economy, generating £70bn of taxes, and the biggest contributor to the UK’s remarkable £92bn invisibles surplus.

The Bank is the guardian of the City’s integrity and stability, a role greatly enhanced since the financial crisis of a decade ago. As the independent setter of interest rates it has an impact on almost every household and business in the country.

After the referendum vote in June 2016 it was the Canadian governor, Mark Carney, who stepped into the vacuum, slicing a quarter of a point off interest rates (taken back in november this year) and putting in place a safety net for British bank lending.

Carney’s extended term as governor is due to end in June 2019 after seven years at the ‘old Lady’ of Threadneedle Street. That is if we are allowed to call it that, after the Bank’s decision to incorporate gender neutrality into its pronouncements.

If past history is the guide then Philip hammond, if he has not been shuffled out of office, will unveil a new governor before the end of 2018, possibly in the Budget.

Through much of the next year potential candidates for the office will be scrambling for advantage.

The next governor will not only have to deal with the issue of normalising UK interest rates and unwinding the holdings of government and corporate bonds but also the practicalities of Brexit.

If there is no bespoke financial sector deal the Bank will also have the task of managing equivalence. historically, when it has come to banking and finance the UK has been rule-giver rather than rule-taker so equivalence should not be a huge problem.

Moreover, as we saw with the aborted merger of Deutsche Boerse and the London Stock exchange, the burghers of Frankfurt are less than enamoured with taking on more financial risk. There will be areas of divergence with Brussels such as the cap on bank bonuses.

The truth is that if bank pay in the City and on the Continent are compared it would only be the distribution, fixed-element versus bonuses which would differ, not the overall payouts. To remain competitive, financial groups cannot afford for earnings to get out of line.

So who is best-placed to be the next governor? The nap of most City watchers is Andrew Bailey, current chief executive of the Financial Conduct Authority(FCA), and former deputy governor. B

AILEY’S experience is impeccable, having worked on rebuilding the UK banking system after the crisis and at the Bank’s international economic division.

Those who think that only top economists are fit to be governor might carp at the fact that his PhD is economic history rather than econometrics.

he might also suffer from his inheritance at the FCA including the failure to punish hBoS bankers, the aftermath of the Reading fraud at Lloyds and the entrails of the Global Restructuring scandal at Royal Bank of Scotland.

In 2012 many influential voices including the FT thought that deputy governor Paul Tucker was a shoo-in to take charge after Mervyn King. In the event, he was tarnished by the Libor scandal, and then Chancellor George osborne courted and chose Canadian central banker Carney.

other internal candidates should almost certainly include chief economist Andrew haldane, who has one of the liveliest minds, and the slightly raffish deputy governor in charge of monetary affairs, Ben Broadbent.

one should not discount second time lucky for past candidates including the frighteningly articulate Lord (Adair) Turner, the politically adept chairman of RBS, Sir howard Davies, or Tucker, currently enjoying American academia.

Is it time for the Bank to have its first woman governor? Many thought Charlotte hogg was ideal before she blotted her copy book with the Treasury Select Committee.

A very different prospect might be former Treasury mandarin Sharon White, currently seeking to drive Britain’s ultra-fast broadband revolution as chief executive of ofcom. She would be an exciting and unexpected choice but might be seen as lacking monetary experience.

But for a job so critical it is worth thinking out of the box.