Deputy Prime Minister Nick Clegg will have a say in the appointment of the next Bank of England governor, boosting the chances of candidates who take a tough line on banks such as Financial Services Authority Chairman Adair Turner and the former civil-service chief, Gus O’Donnell.
The involvement of the Liberal Democrat leader stems from the 2010 coalition agreement with Prime Minister David Cameron’s Conservatives, according to two officials with knowledge of the process. A Liberal Democrat official who asked not to be identified because the discussions have yet to begin said the party sees the appointment as the most significant of any that the government will make.
The decision on who should replace King, who is due to retire in June 2013, is complicated by the fact that Britain has a coalition government for the first time since 1945. The Liberal Democrats, the junior partners, have been outspoken in their calls for curbs on executive pay and protection for the retail operations of banks in the wake of 2008 financial crisis.
“This is one of the areas where the Lib Dems will be very proactive and sensitive,” said Bill Jones, professor of politics at Liverpool Hope University. “It’s a very delicate subject because of the excesses of the banking industry. They will want someone who is not tainted, so O’Donnell and Turner should be involved.”
King, 64, is retiring after completing the maximum tenure of two five-year terms. Liberal Democrats say the choice of successor is more important than ever because the next governor will serve a single eight-year term under legislation to expand the bank’s powers beyond monetary policy to cover financial regulation.
The search will begin as soon as next month and the successful candidate may be announced by the end of the year. There will be a proper selection process and the best person for the job will be appointed, whoever he or she is, the Treasury said in a statement.
While Bank of England Deputy Governor Paul Tucker remains the front-runner to replace King, his odds with bookmakers lengthened after he was dragged into the scandal over the manipulation of Libor rates. William Hill Plc is offering 6-4, meaning a successful four-pound wager would win six pounds profit.
Tucker, 54, denied he had put pressure on Barclays Plc to lower its Libor submissions or come under political pressure to do so after the bank released details of a 2008 phone call with Robert Diamond, then head of its investment division. The memo showed Tucker saying that senior figures in government had expressed concern about the levels Barclays was reporting.
His testimony to lawmakers on July 9 also stoked criticism of oversight failures at the central bank after he said that when concerns about Libor rates were raised at a meeting of bankers and regulators in 2007 it “didn’t set alarm bells ringing.”
Among other possible successors to King, the most outspoken critic of banks has been Turner, 56, who said in 2009 many of the activities carried out by financial-services companies were “socially useless.” Last month he signaled his interest in the job, saying he would “obviously not rule myself out.” Turner is third placed with odds of 3-1, according to William Hill.
O’Donnell, 59, has refused to rule himself out and is placed second favorite with William Hill at 5-2. “When they do advertise it, I’ll make up my mind whether I want to apply or not,” he said in an interview after he joined Toronto-Dominion Bank in June. O’Donnell said on Aug. 2 that banks may have to cut lending to make them less risky and reduce their threat to the economy.
Banking figures that have been linked to the Bank of England role include Stephen Green, the former chairman of HSBC Holdings Plc who is now U.K. trade minister, and ex-Barclays Chief Executive Officer John Varley. Green is fourth favorite at William Hill with odds of 9/2 and Varley fifth on 8/1.
The hunt begins as Clegg and Cameron struggle to contain rifts in their two-year-old government. Tensions escalated last week when Clegg said Liberal Democrats will block legislation wanted by the Conservatives in a dispute over constitutional reform.
Clegg signs off on major economic decisions including the annual budget and has a say in the appointment of major public figures. The 2010 agreement that sets out how the two-party government should operate in practice states that “on the issue of public appointments, the prime minister will consult with and have regard to the views of the deputy prime minister.”
Clegg and Vince Cable, the Liberal Democrat business secretary, led calls for pay restraint at banks in the wake of the 2008 credit crisis. Clegg said last week he wanted to use the parliamentary time gained from dropping plans to overhaul the House of Lords to look at further curbs.
He attacked Barclays for wanting to give Diamond “handsome rewards for having presided over serious wrongdoing” after Diamond resigned as CEO over the Libor-fixing scandal.