London is losing so much trust as the global financial center that Prime Minister David Cameron may need to consider an unprecedented choice for Bank of England governor: Mark Carney, the Canadian who polices the world’s financial system and has no ties to the bailouts or rigged markets tainting Labour and Conservative governments alike.
The 47-year-old Carney, who received his masters and PhD degrees from Oxford University, is no stranger to the City of London after working there with Goldman Sachs Group Inc. Now serving as governor of the Bank of Canada and the head of the Financial Stability Board, he is unscathed by the fallout from the 2008 financial crisis.
As Mervyn King heads into his last 11 months as Bank of England governor on the defensive after the self-regulated market failed to prevent manipulation of the London Interbank Offered Rate, no one in London with central bank experience remains untainted by the Libor scandal. That may boost the appeal of an outsider as Cameron’s government tries to clean up a city that’s home to the world’s biggest currency market.
“Mark Carney is one of the brightest, most capable people I’ve ever met in global finance and central banking,” said Tim Adams, a former U.S. Treasury undersecretary who worked with Carney at Group of Seven meetings. “I’ve been around these circles a long time and he’s smart, politically savvy, a good manager and has an outstanding track record. It’s tough to find all those elements in a single person.”
Domestic candidates for the job include Gus O’Donnell, former head of the U.K. civil service, Financial Services Authority Chairman Adair Turner and Bank of England Deputy Governor Paul Tucker, a three-decade veteran at the bank.
Libor is the latest episode to reveal failings in the City, whose $2 trillion-per-day foreign-exchange market dwarves those in New York, Hong Kong, Canada and the rest of Europe. Barclays Plc was fined a record 290 million pounds ($450 million) last month for rigging the rate, the global benchmark for $500 trillion of securities, after a probe by regulators.
The scandal cost Barclays Chairman Marcus Agius and Chief Executive Officer Robert Diamond their jobs and dented the prospects of Tucker, the bank’s leading internal candidate. He has been criticized by lawmakers for his failure to spot wrongdoing in the reporting of Libor in 2007 and 2008.
“Why not get a head that’s global? Bankers aren’t very popular, and a Canadian sounds like a good choice,” said Kent Matthews, a professor at Cardiff University and former Bank of England researcher. “It may well be that to restore credibility they have to look outside.”
London was also the site of JPMorgan Chase & Co.’s trading loss of at least $5.8 billion and the alleged $2.3 billion fraud at UBS AG. Its “light touch” regulatory approach has been blamed for failing to prevent the near-collapse of Royal Bank of Scotland Group Plc and the run on Northern Rock Plc.
The situation has highlighted the appeal of figures such as Carney, named by Time magazine in 2010 as one of the world’s 100 most influential people for helping shape new global financial rules. That may boost his attractiveness to Britain’s government as Parliament considers a bill giving the Bank of England macro prudential tools and banking-supervision powers.
Born in Fort Smith, a town of 2,400 halfway between Calgary and the Arctic circle, Carney joined the finance ministry in 2004 and became Bank of Canada governor in February 2008. Group of 20 leaders in November 2011 named him chairman of the FSB, which is helping to write new regulations for international finance. His term at the Bank of Canada ends January 2015.
In contrast to King’s academic background, he is a 13-year veteran of Goldman Sachs, which also counts European Central Bank President Mario Draghi and Federal Reserve Bank of New York President William Dudley as former employees.
Carney, who has a British-born wife, earned a reputation for healing troubled markets while at the Canadian finance ministry. In 2007, he brokered a restructuring of about C$35 billion ($34 billion) of asset-backed commercial paper, which helped to avert a deeper crisis as the collapse of the U.S. subprime market made banks worldwide reluctant to lend.
Appointed head of the Bank of Canada in 2008, he cut the benchmark rate to a record and made a “conditional commitment” to keep rates low for a fixed period. U.S. Federal Reserve Chairman Ben S. Bernanke copied that commitment in August 2011. Canada’s economy grew 2.5 percent in 2011 and may expand 2.1 percent this year, according to the International Monetary Fund. In Britain, the economy may grow just 0.2 percent.
London’s regulatory model was first introduced with the 1986 “Big Bang,” when Conservative Prime Minister Margaret Thatcher pushed a free-market model to boost London’s role in global finance. It was then championed by Labour administrations under Tony Blair and Gordon Brown.
“In the old days, it was a gentlemen’s club policed by peer review where fraudsters became pariahs, and then we tried this self-regulation system with a fraud agency that’s not up to muster,” said Patrick Minford, a professor at Cardiff University and a former adviser to Thatcher. “We need to move on with a strong regulatory environment so we can get back to being one of the strongest financial centers in the world.”
In addition to Tucker, London’s banking scandals have thrown road blocks in front of potential Bank of England candidates including ex-Barclays CEO John Varley and former HSBC Holdings Plc Chairman Stephen Green.
“You can’t easily choose a banker today,” said Douglas McWilliams, chief executive officer of the Centre for Economics and Business Research in London. “You probably have to go beyond government, and that’s when it becomes difficult.”
The U.K. isn’t a stranger to putting non-nationals in key positions at the central bank. Its Monetary Policy Committee has included Americans Deanne Julius, on the panel from 1997 to 2001, and Adam Posen, who will step down at the end of August. Kit McMahon, an Australian, worked at the bank for more than two decades and was its deputy governor from 1980 to 1986.
Still, the complexities and scale of the Bank of England’s new powers may weigh against choosing a governor with little direct experience of the U.K. regime. The winning candidate would oversee a financial district that’s home to banks worth $271 billion in total, second only to New York, where the total market value comes to $289 billion. Toronto’s banking industry is worth $194 billion and Hong Kong’s comes to $74 billion.
“One of the great successes of the MPC has been the number of non-Britons who’ve been on the committee,” said Steven Bell, chief economist at hedge fund GLC Ltd. in London. “But for the governor you want someone with deep knowledge of the British economy and the regulatory issues.”
Dan Conaghan, author of a book on the Bank of England, said he’s almost certain there’s never been a foreign head of the central bank since it was founded in 1694. The central bank said it isn’t possible to be definitive on the nationality of all the governors.
Carney has so far given no public indication he’d apply for the job when Chancellor of the Exchequer George Osborne starts the formal selection process in the fall. In April, he rebuffed a Financial Times report that the Bank of England’s Court of Directors had approached him, saying he hadn’t been contacted. Carney, who said in April he is “totally focused” on his current jobs, couldn’t be reached for comment.
Among the other potential successors to King, O’Donnell has been described by GLC’s Bell as the “best-qualified.” O’Donnell said last month he’s using his new job as an adviser at Canada’s Toronto-Dominion Bank to learn about banks and regulation. Turner said in an interview on July 24 that “I would obviously not rule myself out.” Tucker has yet to show his hand.
“Tucker would make the best candidate, but if not him, then Mark Carney makes a very strong case,” said Shamik Dhar, head of investment strategy at Aviva Investors in London and a former Bank of England economist. “He’s a central banker and so has the right experience, he knows the macroeconomic situation and the international markets well, and he’s guided the Bank of Canada extraordinarily effectively.”
Britain already has one Canadian running a British institution. Moya Greene, a Newfoundlander who left Canada Post to become Royal Mail Group Ltd. CEO in 2010, says that putting an outsider into a top job can help by bringing a different perspective.
“He’s a fantastic candidate, I’ve known him for quite a long time, and I’d be very surprised they wouldn’t consider someone as strong as Mark Carney,” she said in an interview. “I do think it helps that you can see things with fresh and different eyes sometimes.”