King’s Successor Must Be More Like Chairman, Lewis Says
Bank of England Governor Mervyn King’s successor will have to limit involvement in the bank’s daily activities to cope with the breadth of new powers, said Stephen Lewis, an economist at Monument Securities Ltd.
The position will be more like that of a chairman of a company, with greater authority resting with the deputy governors, said Lewis, a four-decade veteran of London’s financial industry and a former schoolmate of King’s. The bank is getting unprecedented powers over financial stability and regulation to add to its monetary-policy remit.
“I’m sure he’d be very reluctant to give up the monetary- policy role, but the next governor will have to stand back a little,” Lewis said in an interview yesterday. “Mervyn enjoys getting to grips with the economic-policy issues, but the future governor won’t have the luxury of time to get involved with the debate at that level of detail.”
The race is on to replace King when he retires in June, with applicants having until Oct. 8 to inform the Treasury of their interest. Lewis said Paul Tucker, the deputy governor for financial stability who has spent more than 30 years at the central bank, deserves to get the top job as he understands the challenges of absorbing the new powers.
“He wouldn’t be tempted to follow in the footsteps of Mervyn because he’s seen the difficulties that Mervyn’s got into,” he said. “Mervyn ran afoul of the institutions the bank is supposed to be supervising, he’s not very popular in banking circles, and that may well impair the abilities of the future governor if he’s in a similar position.”
As the financial crisis gripped the U.K. five years ago with the run on Northern Rock Plc, King was criticized by lawmakers for an excessive focus on moral hazard and moving too slowly to provide assistance to lenders.
King, 64, is retiring after completing the maximum of two five-year terms. Lewis was a classmate of his at Wolverhampton Grammar School, located in an industrial and mining city 130 miles northwest of London. Lewis began his career in financial markets with Phillips & Drew in 1970 and became director of economic research in 1985. He was a founding partner of The London Bond Broking Co,. which subsequently became a division of what is now Monument Securities.
In a note published yesterday, “All Change at the Bank,” Lewis said the government may struggle to find a suitable candidate for Bank of England governor.
“There is despair in some quarters over finding an individual who might be capable of undertaking all the responsibilities of the office,” he said. “There almost certainly is no one highly-skilled at fashioning monetary policy, who also has an excellent grasp of regulatory issues and has the air of authority and the charisma to argue the bank’s case successfully in public.”
Bookmaker William Hill Plc (WMH) has Tucker as favorite to succeed King, at odds of 7-4, meaning a winning 4-pound ($6.50) bet would yield a 7-pound profit. Bank of Canada Governor Mark Carney is at 5-2, Financial Services Authority Chairman Adair Turner is 3-1 and former chief U.K. civil servant Gus O’Donnell is 5-1. John Vickers, chairman of the Independent Commission on Banking, is 10-1.
Charles Bean, the deputy governor for monetary policy, will also retire next year. Recent precedent indicates that Chief Economist Spencer Dale would be the favorite to replace Bean, though given the increased power of deputy governors such a move would be “very interesting” for markets, Lewis said.
“He’s been noticeably more hawkish than the consensus on monetary policy,” he said. “He’s been markedly less friendly to continuing quantitative easing.”
Markets Director Paul Fisher would probably replace Tucker were the latter to become governor, and Fisher would be replaced by Andy Haldane, now the executive director for financial stability, Lewis said.
The deputy governors will have a more prominent role as the governor’s position is “stripped down” to only its essentials, Lewis said. These include representing the BOE in Parliament and at the Group of Eight and Group of 20 meetings. The new chief will have to be less involved with details such as supervising individual institutions under its new powers, he said.
“We have to reinterpret the role of governor so that it’s no longer a hands-on executive position, but it’s more like a chairman of a private company,” Lewis said. “It’s only going to be a problem if we all expect the new governor to be the kind of hands-on governor we’ve grown used to.”
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