Carney’s Brexit adventure a wild and crazy ride
Green efforts were initially scoffed at for being outside his remit
When he agreed in 2012 to cross the Atlantic and swap the governorship of the Bank of Canada for that of the Bank of England, Mark Carney declared he was “going to where the challenges are greatest.”
More than seven years later, as he prepares to leave office, a somewhat wiser and certainly grayer-haired Carney acknowledges with a smile that “the challenges were even greater maybe than I realized at the time.”
None more so than in the early hours of June 24, 2016, after Britons defied the odds by voting to leave the European Union.
Arriving in his London office around 3:30 a.m. with the pound already plunging, Carney tracked results and watched markets before speaking to then-chancellor of the Exchequer George Osborne, the lawmaker who had pulled off the coup of hiring him and who would soon be cast from government.
At 8:45 a.m. or so, shortly after the prime minister resigned, Carney paced down the giltedged corridor outside his office to deliver a presidentialstyle televised address to the nation.
“We are well prepared for this,” he said.
Prepared maybe for managing the market and economic fallout from the Brexit vote as he fought to avoid a recession. Perhaps not, however, for the harsh political criticism that would be directed his way in the subsequent years — even as he agreed three times to extend his term to oversee the U.K.’s departure from the bloc and smooth the path to his successor.
A scorecard for Carney’s Brexit-dominated tenure would award him credit for supporting economic growth, strengthening the financial system, and focusing attention on modern challenges such as digital currencies and climate change. His demerits: communications missteps on interest rates, exposing the bank to political fire, and failing to keep women in top positions.
This story is based on interviews with people who worked with or encountered the governor during his tumultuous years running the BOE. Some individuals spoke on condition they would not be identified so that they could talk more frankly.
Initially brought in to strengthen Britain’s financial system, Carney ended up doing that and more as the possibility of a no-deal Brexit became, in his words, “uncomfortably high.” Two months after his post-referendum reassurances, the BOE cut rates to a record low and restarted bond purchases. It even looked through an inflation spike driven by a slumping pound to keep monetary policy exceptionally loose.
The measures were dramatic, and may have gone further than necessary, but they showed Carney’s determination to prevent a downturn. The U.K. economy stayed out of a recession, and inflation during his tenure has averaged 1.6 per cent, not far from the two per cent target.
His insistence that banks increase their buffers against financial risk came into focus when lawmakers asked the BOE to provide worst-case economic scenarios for Brexit. Stress tests to measure banks’ resilience showed they’d be strong enough to continue lending even if a disorderly departure were to provoke a crisis.
“Financial crises or banking crises are conventional risks,” Carney told Bloomberg Television in an interview. “Issues around a cliff-edge Brexit — those are different.”
His mission to protect the U.K.’s financial system went further. Financial services account for about seven per cent of the British economy, so the way they’ll be regulated after Brexit is critical. Carney was a defender of the City of London — calling it Europe’s “investment banker” — and even warned the EU that it was in its interest to have a comprehensive deal.
The first foreigner to run the BOE in its three-century history, the governor began in 2013 with a status rarely associated with central bankers. Osborne, who hired him after an extended courtship, described the former Goldman Sachs Group Inc. banker as the most qualified person in the world for the job. The government was so keen on him, it agreed to shorten his term to five years from the statutory eight.
Carney, then 48, brought a flashier style than his academic predecessor, Mervyn King. A regular at the World Economic Forum in Davos, he was well known in central-banking circles as chairman of the Financial Stability Board, which coordinates international regulation of the financial system. There, he succeeded in implementing most reforms proposed in the wake of the financial crisis, including making banks more resilient, ending the problem of too big to fail, and making derivatives markets safer.
“He’s been a real star” as chair of the FSB, said Charlie Bean, who served a year under Carney as deputy governor. “There was a window of about five years before people forgot about the consequences of the crisis, so it was very important to drive that regulatory agenda forward.”
He was also paid like a star at the BOE — 480,000 pounds ($825,766) plus an annual 250,000-pound housing allowance. That exceeded the combined earnings of his counterparts at the Federal Reserve and European Central Bank, and made headlines when many Britons couldn’t afford a home.
He became a U.K. celebrity as soon as he arrived. Newspapers featured photos of him at a music festival wearing glittery face paint. He dropped pop culture references such as the names of musicians into speeches with ease. Lawmakers on Parliament’s Treasury Committee, which Carney was obliged to attend for hours of questioning, joked he should have arrived to the tune of 1980s pop song “Smooth Operator.”
Inside the BOE, an austere institution where doormen still wear pink tailcoats and top hats, it was clear something radical was happening too.
At meetings of the Monetary Policy Committee, Carney changed his name card from “Mr. Governor” to “Mark Carney.” The guidance to staff was “call me Mark,” though that took time to catch on. He was a much more visible presence than King.
Meetings ran on time, and so did he. He completed the 2015 London marathon in three and a half hours.
“Some things became a little bit more informal,” said Ian McCafferty, who sat on the MPC in the first five years of Carney’s reign. “If I needed to talk to Mark, I’d pop down and go and see him in his office. If I wanted to see Mervyn I’d do the same, but it would be a little more formal, it would be ‘good afternoon Mr. Governor,’ rather than ‘Hi Mark.’ ”
While businesslike, he could be unforgiving. Carney sometimes interrupted staff during presentations, and demanded they try again later when better prepared.
In contrast to his easygoing persona in public, they got to know his temper too. Being on the receiving end of sudden flashes of fury became known as “getting Tasered.”
Before long, the governor was spearheading a revolution at the central bank. After less than a year, he unveiled a McKinsey designed shakeup aimed at modernizing a bureaucratic, hierarchical behemoth. A slogan emerged on computer screensavers throughout the BOE: “One Bank.”
The frenzy of change eventually reached every corner of the institution. A modernization of the library raised some hackles. Most symbolically, the traditional cricket match at the bank’s annual sports day was scrapped.
Carney himself took time to adjust from the Canadian system, where the governor is ultimately responsible for monetary decisions. At the BOE, every policy-maker has an independent vote.
It was a shift he may never have fully got used to, according to former officials. The central bank declined to comment on this or other parts of this story when contacted by Bloomberg.
That struggle to accommodate the collegiate design of the MPC was a frustration to some members, most notably after the U.K.’s vote to leave the EU in June 2016.
A week later, while claiming he wasn’t “prejudging” the views of his colleagues, he effectively pre-announced a loosening of monetary policy before it had been formally discussed.
When Carney began in July 2013, interest rates were already at a record low of 0.5 per cent, the economy had just emerged from its first doubledip recession since the 1970s (revised away just before his arrival), and Britain’s 65 million people were in the grip of fiscal austerity.
Early on, the new governor insisted on adopting the signature policy tool he honed in Canada, known as forward guidance.
This took the form of a pledge not to raise the rate at least until unemployment dropped to seven per cent, a message intended to provide certainty to the economy that monetary conditions would remain loose as long as needed.
That soon went awry. The policy, intended to last for years, was abandoned in mere months as the jobless rate swiftly fell. Carney was forced to quickly replace it with a more opaque commitment that hinged on the amount of slack in the economy.
“Forward guidance wasn’t the most successful thing the MPC ever did,” said David Miles, a policy-maker for the first two years of Carney’s term, who teaches at Imperial College London. “We didn’t get that right.”
While the increased openness of his first years attracted praise, there were missteps. Markets were repeatedly whipsawed by shifting communications. One episode in 2014, where Carney was forced to temper an earlier signal on a possible interest-rate increase, led lawmaker Pat McFadden to describe his mixed message to investors as worthy of an “unreliable boyfriend,” a description that stuck.
Policy-makers tended to follow Carney’s lead in monetary decisions. Unlike King, who was outvoted repeatedly, he was never in the minority. In 66 meetings, he faced just 45 votes against him out of a total 525. The governor’s assertive personality may have shut down dissent, according to one former employee.
While quibbles over communication became a recurrent theme, they seem almost quaint compared with the subsequent battles over Brexit.
While Britain’s protracted exit from the EU dominated his tenure, that didn’t stop Carney pursuing passion projects such as exploring financial risks from climate change, or proposing an overhaul of the entire global monetary system with his synthetic hegemonic currency.
His green efforts were initially scoffed at for being outside his remit; now, the topic is so fashionable for central banks that he seems visionary.
Other initiatives were less successful. While he bemoaned the lack of diversity in the bank’s leadership and introduced targets, the bank looks set to fall short of its aim to have 35 per cent female representation in senior management by the end of this year. It’s even further behind on its ethnic diversity goal for high-level positions.
“Forward guidance wasn’t the most successful thing the MPC ever did. We didn’t get that right.” DAVID MILES A POLICY-MAKER FOR THE FIRST TWO YEARS OF CARNEY’S TERM