Osborne Said to Look Beyond Bank of England for King Successor as Governor
Chancellor of the Exchequer George Osborne is considering looking outside the Bank of England for a successor to Mervyn King, which would be the first such move in 30 years, according to two people with knowledge of the matter.
Osborne and officials at the Treasury in London will begin the search for King’s successor after March, with the aim of making an announcement later this year, said one of the people, who declined to be identified because the process is still at an early stage. The Treasury would prefer the next governor to have banking experience now that the central bank’s powers have been expanded to include regulation of lenders, the person said.
The Treasury’s current position contrasts with the view among some economists and bookmakers that Bank of England Deputy Governor Paul Tucker is the favorite for the role. Widening the pool of candidates beyond central bank insiders follows strains with the Treasury dating back to 2007 that center on how King responded to the financial crisis.
The enhanced powers “may well argue for a banker rather than an economist like Mervyn King,” said Jonathan Loynes, chief European economist at Capital Economics Ltd. in London. “It’s become clear over the last few years that being the governor is not just about setting interest rates.”
King is scheduled to leave the bank at the end of June 2013 after serving the maximum two five-year terms allowed. The next governor may be limited to a single eight-year term, under legislation proposed by the government.
The government aims to announce an appointment before the end of the year so that a successor is known at least six months before King’s second term expires, one of the people said.
A Treasury official said the chancellor will pick the best person for the Bank of England role and that the selection process hasn’t begun yet. The central bank declined to comment.
Civil servants will draw up a list of candidates for Osborne, who need not limit his choice to that selection. He will put his recommendation to the prime minister and the appointment is made formally by Queen Elizabeth II.
The new governor will head the Financial Policy Committee, set up as part of an overhaul of banking regulation that will see the Financial Services Authority abolished and most of its powers transferred to the Bank of England.
Former HSBC Holdings Plc (HSBA) Chairman Stephen Green, now a minister in the Department for Business advising Osborne on banking issues, ex-Barclays Plc (BARC) Chief Executive Officer John Varley, and the chairman of the Financial Services Authority, Adair Turner, may be among the list of candidates that civil servants will prepare for Osborne, economists say.
Still, Tucker, 53, is favored by bookmaker Paddy Power to succeed King. The Dublin-based bookmaker is offering 7-4 odds, meaning a 4-pound ($6.28) wager would return a 7-pound profit.
The philosophy and mathematics graduate from Cambridge University joined the central bank in 1980, working as a banking supervisor and on secondment as a corporate financier. He has also led the central bank’s Monetary Assessment and Strategy division.
“Tucker is an immensely credible candidate,” said Richard Barwell, an economist at Royal Bank of Scotland Group Plc (RBS) and a former central bank official. “Not picking him would be a rap on the knuckles from the Treasury to the Bank of England.”
Neil MacKinnon, global macro strategist at VTB Capital in London and a former U.K. Treasury official, said the new financial powers may go against appointing a banker.
“I’m not in favor of poachers turned gamekeepers,” he said. “A banker may raise the question of a conflict of interest. The governor has to be seen as independent.”
Among the other possible successors, the FSA’s Turner is 11-4 to succeed King, according to Paddy Power, making him second favorite. He is a visiting professor at the London School of Economics and has held jobs in banking, public policy and academia.
Both Green and Varley are at odds of 3-1. A career banker who spent almost three decades at HSBC, Green presided over one of the few British banks not to need public funds during the financial crisis.
Other names that may make the shortlist include Peter Sands, CEO of Standard Chartered Bank Plc, and John Vickers, a former Bank of England chief economist and head of the Independent Commission on Banking, according to economists.
The last time the government named an outsider was in 1982 when Prime Minister Margaret Thatcher clashed with central bank officials after money supply surged in the early part of the decade. With her choice of National Westminster Bank Chairman Robin Leigh Pemberton as replacement for Gordon Richardson, she “was taking her revenge” on the bank, historian David Kynaston wrote in his 2001 book, “The City of London: A Club No More.”
Leigh Pemberton was succeeded in 1993 by Edward George, who was then followed by King in 2003. Both were deputy governors prior to their appointments. Weighing on prospects for a bank insider this time is a series of clashes between the incumbent and the Treasury since the start of the financial crisis. Former Chancellor Alistair Darling wrote in his memoir of his difficult relations with the “incredibly stubborn” King, whom he considered not reappointing for a second term.
Darling described his “frustration” over King’s resistance to put money in the financial system to avoid so- called moral hazard. Such disputes prompted a delay in the passage of legislation to empower the Bank of England governor to exercise new powers over banks, meaning King may not get the chance to wield it, three people with knowledge of the matter said last year.
Memory of King
King’s position stuck in the memory of Treasury officials and has shaped relations since, said a person with knowledge of the matter. Treasury officials are also concerned about the amount of power being transferred to the central bank and fear that tensions would increase, the person said.
Tensions continued into last year when Osborne made public his desire for the central bank to use its so called quantitative-easing program to buy corporate bonds to encourage market liquidity and lending in the wider economy.
“The banking system is clearly ill,” said Stewart Robertson, an economist at Aviva Investors in London. “So someone who understands the banking world would be received quite well.”