Carney Shows Substance Behind ‘Rock Star’ Image in U.K. Hearing
Treasury Committee Chairman Andrew Tyrie, from the ruling Conservative Party, paid tribute to Carney for being “extremely lucid and interesting” while the opposition Labour Party’s Andy Love said he had successfully shed his “rock-star image.” Carney, 47, was yesterday questioned on his pay, monetary policy and financial stability as he prepares to become the first foreigner to run the Bank of England since its founding in 1694.
Carney is poised to succeed Governor Mervyn King on July 1 as the economy teeters on the verge of its first ever triple-dip recession. As lawmakers probed what he plans to do about it, Carney’s replies centered largely on maintaining the status quo while adding more flexibility to the inflation target.
In a statement released later, the cross-party panel said it endorsed Carney’s appointment. “He has begun as I hope he continues, providing forthright and detailed evidence, orally and in writing, in response to our requests,” Tyrie said in the statement. “I welcome his agreement that the bank will comply with reasonable requests from the Treasury Committee for information and for retrospective reviews to be conducted. This is a step forward.”
The questioning of Carney was “friendly, not hostile,” said Danny Gabay, director of Fathom Financial Consulting and a former economist at the Bank of England. “He didn’t face any hostile bowling, just a few volleys.”
Questions Over Pay
The toughest questions came at the beginning of the session when Carney was asked to justify his salary of 480,000 pounds ($755,856), his allowance of 30 percent of salary in lieu of a pension and a 250,000-pound annual housing allowance.
“Mortgages are hard to come by,” said Teresa Pearce, a Labour lawmaker. “Would you say that is why you need an extra quarter of a million housing allowance?” Carney said the allowance was comparable with those awarded to other executives.
He was later asked a series of quick-fire questions, such as “how would you describe unwinding QE?” or “what is a liquidity requirement” by Conservative David Ruffley, who sought to see if Carney was able to communicate clearly. Ruffley was referring to quantitative easing, the program of asset purchases used by the Bank of England in an effort to spur the economy.
“I think that’s all I have there,” Ruffley said after Carney’s replies.
“I think you scored pretty well there,” added Tyrie, to laughter in the room.
Levels of Failure
Jesse Norman, another Tory lawmaker, asked Carney what he thought “a tolerable level of failure in a bank should be. Do you like medium levels of failure or low levels of failure?”
Carney said he prefers “low levels of failure.”
Still, questions are likely to get tougher in the months ahead and Tory Andrea Leadsom said Carney’s pay was justified given the challenges he faces.
As the central bank prepares to get responsibility for regulating banks, Carney will need to monitor risk in a financial system that has still to fully recover from the credit crisis that began in 2007. Household debt is equivalent to about 1 1/2 times disposable income, and two in every five mortgage borrowers pay only the interest on their home loans. Consumers can no longer rely on easy bank credit and will remain squeezed for years.
While the U.S., Germany and Canada are back above their pre-recession levels of gross domestic product, Britain remains in its longest peacetime slump of any since the 1920, with output more than 3 percent below its peak in early 2008. At the same time, the economy is facing the prospect of a fourth year of above-target inflation.
“The problem he faces is that too much is expected of monetary policy,” John Llewellyn, a partner at Llewellyn Consulting, said before today’s hearing. “Monetary policy is expected to cure all ills and that’s asking too much. I am sure that, to that extent, his appointment has been oversold.”
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