Bank of Canada Governor Mark Carney was unexpectedly named head of the Bank of England as the U.K. government looked abroad for a candidate untainted by financial turmoil to lead the beefed-up central bank.
Carney, a 47-year-old former Goldman Sachs Group Inc. managing director, will become the first foreigner to run the 318-year-old institution as it absorbs new powers to oversee banks. He’ll replace Mervyn King, 64, in July as policy makers pursue record-low interest rates and asset-buying to propel the economy from its first double-dip recession since the 1970s.
Carney’s London posting comes after a series of trading scandals dented the capital’s status as the world’s leading financial center, prompting a rejig of regulation that will test skills the Canadian gleaned as head of the world’s banking watchdog. His chief rival for the job, BOE Deputy Governor Paul Tucker, became entangled in the Libor rate-rigging scandal earlier this year.
“It’s incredibly bold of the government to appoint a foreigner,” said Steven Bell, chief economist at hedge fund GLC Ltd. in London and a former U.K. Treasury official. “He has experience of running the regulatory and monetary policy decisions. He’s highly regarded.”
In announcing his selection and seeking to offset any criticism about his decision to look overseas for talent, Chancellor of the Exchequer George Osborne described Carney as “quite simply the best, most experienced and most qualified person in the world to do the job.”
The pound erased its decline against the dollar after the announcement of the appointment before weakening again. It was at $1.6031 as of 10:05 p.m. in London. Government bonds stayed higher, with the yield on the 10-year gilt at 1.84 percent.
Carney, who holds an economics degree from Harvard and a doctorate from Oxford University, swaps oversight of an economy which bounced back from the global recession without witnessing a single bank bailout for one which slipped back into recession in the second quarter and required multiple bank rescues. The Canadian -- who has been Bank of Canada governor since February 2008 -- will be paid an annual salary of 624,000 pounds ($1 million) in his new job.
As of Aug. 31, the Bank of Canada’s balance sheet was 72.7 billion Canadian dollars ($73 billion). The Bank of England’s was 414 billion pounds on Nov. 21.
“I’m going to where the challenges are greatest,” Carney said in Ottawa today. “This is a major challenge, a major opportunity.”
The BOE’s Monetary Policy Committee has kept its benchmark interest rate at a record-low 0.5 percent since March 2009 and pursued a quantitative-easing program that’s grown to 375 billion pounds -- even with inflation above its 2 percent target every month since the end of 2009.
Carney previously suggested he wasn’t a candidate. When asked on the BBC’s Hardtalk program in August whether he would be interested in becoming governor, he said he was “very focused” on his current posts and “interested in who they pick.” Questioned on whether that meant “a no or a never consider the job?” he said: “It’s both. How’s that?”
Bookmakers cited Tucker, a three-decade veteran of the Bank of England, as the frontrunner. William Hill Plc didn’t mention Carney as a contender when it provided odds on Nov. 24 of 1-4 for Tucker, meaning a successful 4-pound bet on him would have yielded a 1-pound profit. Ladbrokes gave odds of 2-9 for Tucker and 12-1 for Carney.
Tucker’s prospects recovered after an upset this year when he got engulfed in the scandal surrounding the setting of London Interbank Offered Rate, when Barclays Plc published a memo outlining discussions between him and the bank over high Libor submissions in 2008.
“Most in the City of London had taken for granted that, despite the Libor scandal which may have damaged him more than many thought at the time, Tucker was probably the most likely appointment,” Rob Carnell, chief international economist at ING Groep NV in London, said in an e-mail.
Tucker’s chances may also have been undermined by his status as a BOE insider. Three reports commissioned by the central bank’s governing body and published this month criticized its hierarchical culture.
The reports “highlight a culture that needs changing, a task that would probably have been more difficult for a candidate from within,” said Rob Wood, an economist at Berenberg in London who worked at the BOE until earlier this year.
Libor was 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 was fined a record 290 million pounds for the rate.
London was also the site of JPMorgan’s trading loss of at least $5.8 billion and the $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.
Despite criticism of its role in navigating the financial turmoil, the Bank of England is being handed increased responsibility for U.K. financial regulation.
The current bank regulator, the Financial Services Authority, will be dissolved and a new Prudential Regulatory Authority will oversee all deposit-taking institutions, insurers, investment banks and clearing houses. It will operate within the Bank of England, while Carney will lead the Financial Policy Committee, charged with addressing risks to the broader financial system.
At the Financial Stability Board, Carney has led the effort to rewire the rules of global finance. He pushed for tougher regulations for global lenders and clashed with banking executives such as JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon over requirements to hold more capital. He will keep his job as chairman of the FSB.
On his watch, the group also extended its rule-making into the shadow-banking system and began to tackle the question of how it should enforce implementation of its agreements. Time magazine named him one of the world’s most influential people in 2010.
“Mark is wicked smart, politically savvy, widely-respected and a genuinely decent person,” said Tim Adams, a former U.S. Treasury undersecretary who worked with Carney at Group of Seven meetings. “He will prove to be a critical thought leader on monetary policy and financial regulation for decades to come.”
In a fresh boost to its nickname of “Government Sachs,” Carney will join European Central Bank President Mario Draghi and Federal Reserve Bank of New York President William Dudley among the alumnae of Goldman Sachs now setting monetary policy. Ben Broadbent also worked at the New York-based bank before joining the Bank of England’s MPC last year.
Carney worked at Goldman Sachs for more than a decade, including a period in London, before joining the Bank of Canada as deputy governor in 2003. During a spell at his country’s finance ministry, he brokered a restructuring of about 35 billion Canadian dollars of asset-backed commercial paper, which helped to avert a deeper mess as the collapse of the U.S. subprime market made banks worldwide reluctant to lend.
Carney will face an approval hearing at the U.K. Parliament’s Treasury Committee before the new job commences on July 1, the day after King steps down. Carney, who is married to a Briton and has four daughters with dual nationality, plans to serve for five years and will seek British citizenship, Osborne said.
He will become the youngest BOE governor since Cameron Fromanteel Cobbold was appointed at the age of 44 in 1949.
The U.K. isn’t a stranger to putting non-nationals in key positions at the central bank. The MPC has included Americans Deanne Julius, on the panel from 1997 to 2001, and Adam Posen, who stepped down at the end of August.