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Published: Tuesday November 27, 2012 MYT 8:15:00 AMUpdated: Tuesday November 27, 2012 MYT 11:44:43 AM
LONDON/OTTAWA: Britain named Canadian central bank chief Mark Carney on Monday to head the Bank of England, springing the surprise choice of a foreigner to push reform of its troubled financial system.
A former Goldman Sachs investment banker who at the Bank of Canada guided the Canadian economy through the global economic crisis, Carney will succeed Mervyn King who retires in July.
Carney, who already plays a leading role in setting global banking rules, defended his departure from Canada and signaled that bigger problems awaited him in London.
"I'm going to where the challenges are greatest," he told an Ottawa news conference, stressing the need to "rebalance" the economy which has relied heavily on a financial services sector hit by huge losses and scandals.
"It's very important for the global economy that the UK does well, that it succeeds in this rebalancing of their economy, that the reform of the British financial system is completed," he said.
Carney will become the first non-British head of the central bank in its 300-year history, beating hot favorite BoE deputy governor Paul Tucker to the post, which will pay a salary of 624,000 pounds ($1 million). The Bank of Canada does not disclose Carney's exact salary but says he is paid in a range equivalent to US$436,200-$513,000.
During the crisis, Carney helped to make Canada's recession one of the shallowest of the world's richest nations. No Canadian bank needed government help, and the country recovered all the jobs it lost in the downturn relatively rapidly.
By contrast, Britain had to bail out Royal Bank of Scotland and Lloyds Banking Group, and the world's sixth-largest economy is still struggling to achieve growth four years after the crisis broke.
Carney, 47, will remain as head of the Financial Stability Board (FSB), a Basel-based body that sets global banking rules, when he moves to London next year, although the Bank of Canada itself does not regulate the country's banks.
"I believe he will bring the strong leadership and external experience that the Bank (of England) itself needs as it takes on its heavy new responsibilities for regulating our banking system," Chancellor of the Exchequer George Osborne, the finance minister, told parliament in announcing the appointment.
Carney will stay at the Bank of Canada through May, and starts at the Bank of England in July. He will serve a five-year term, rather than the eight years that had been expected for the next BoE governor.
From next year the BoE will take charge of British financial regulation, almost doubling its size. This boosted the case for a governor with strong management skills and financial market experience, rather than someone in King's academic mould.
Carney's past as a Goldman Sachs investment banker has been a double-edged sword, as he fought to prove his loyalties lie with ordinary citizens, not his high-flying banker ex-colleagues. He clashed memorably last year with JPMorgan Chase & Co Chief Executive Jamie Dimon in Washington, when the U.S. banker argued against new regulations for the financial sector.
Carney also courted controversy in August when he accused Canadian firms of sitting on piles of "dead money", rather than investing it. Large British companies also have money to invest, but little appetite to do so at a time of strong economic risks.
How Carney's monetary policy experience will translate to Britain is less clear. Although the Bank of Canada has raised interest rates, unlike the BoE, economists said this reflected Canada's strong economy rather than a bias on Carney's part.
"Pragmatic is how I'd describe him," said Derek Burleton, an economist at Toronto-Dominion Bank. "He doesn't come across as an ideologue one way or the other."
Under King, the BoE has poured 375 billion pounds into the economy by buying government bonds. The Bank of Canada has not used this policy of "quantitative easing" largely because its economy never weakened enough to warrant it.
Until now, Carney had strongly played down the possibility of heading the British central bank. "(It's a) surprise, huge surprise," said Peter Dixon, an economist with Commerzbank. "That was the one guy I didn't have in the running.
Carney said he did not apply for his new job as part of the formal process, and discussions intensified only in the last two weeks.
He has already spent a decade in Britain as a postgraduate student at Oxford and at Goldman Sachs - where European Central Bank President Marin Draghi also once worked. Carney, whose wife is British, will apply for citizenship, Osborne said.
Carney pointed to the steady state of Canadian banks, which also contrasts to some of those in Britain that have been sucked into scandals over rigging the Libor interest rate and mis-selling financial products to people who didn't need them.
"We have a system that works very well. It's been tested under the biggest economic shock and financial shock that any of us will ever see in our lifetime, and it has passed that test," he said.
His job has been helped in recent years by booming prices for Canada's commodities exports from oil to gold and grain.
The still-athletic Carney - a sub-four-hour marathon runner - was once described as "un-Canadian" by one Ottawa official because of his sometimes confrontational style.
Canadian Finance Minister Jim Flaherty expressed the mixed feelings in Ottawa about Carney's departure. "It's bitter-sweet. It's our loss. His loss will be felt," he said.
The foreign exchange market passed a similar judgment with sterling rising against both the U.S. and Canadian dollars. The pound hit to a 2-1/2 week high against the Canadian dollar to C$1.5950 from C$1.5898 beforehand. - Reuters
Carney's deputy seen as favourite to take over at Bank of Canada
OTTAWA: The Bank of Canada's senior deputy governor, Tiff Macklem, is the early favourite to replace Mark Carney as the head of the central bank, pointing to a steady-as-she-goes policy that points eventually to higher interest rates.
The policy picture would be less clear, however, if an outsider were brought in for the top Bank of Canada job, something that the bank has done on the last two occasions.
"He's been very involved with the governor since the credit crunch began, and we know that the two see eye-to-eye on many of the dynamics that are occurring in Canada right now," Ian Pollick, fixed income strategist at RBC Capital Markets, said of Macklem.
That said, the uncertainty introduced with the surprise appointment of Carney to the Bank of England weakened the Canadian dollar and boosted bond prices as markets bet on a chance, however slight, of a more dovish policy.
The Bank of Canada stands apart from other major central banks in that it avoided large bouts of quantitative easing and now insists the next move in interest rates is likely to be up.
It presided over a relatively quick recovery from the world economic crisis, with no Canadian bank having needed a government bailout. Canada's resource-rich economy has driven growth as other industrialized countries have struggled, and the country's property market avoided the excesses that plagued the United States, allowing Canada's banks to avoid losses.
Arguing in favour of choosing from within the bank for a new chief is the need to maintain morale, after the bank's senior deputy governor was passed over for outside candidates in the last two appointments -- David Dodge in 2001 and Mark Carney in 2008.
"Every so often at least you have to go internal just for long-run morale considerations," said Bill Scarth, economic policy expert at McMaster University in Hamilton, Ontario, and at the C.D. Howe Institute in Toronto. "Otherwise, when people get senior they start looking for another job."
And given that Macklem became senior deputy governor only in July 2010, it would be "awkward to all of a sudden jump somebody over him unless it's an outside person," Scarth said
Macklem, 51, is currently the bank's chief operating officer and has been actively involved at the global Financial Stability Board, where he chairs a committee on standards implementation. He was previously the associate deputy minister at the Finance Department and was Canada's Group of Seven deputy.
Under Carney, the Bank of Canada was the first in the G7 leading industrialized nations to raise its reference rate from the rock-bottom level in the global financial crisis. It has held the rate at 1 percent since September 2010.
In April it signalled a rate hike might become appropriate, something it now says will happen "over time," making it an outlier in a G7 more focused on continued stimulus.
The median view in an October 24 Reuters survey of primary dealers is that the next rate hike will not be until the fourth quarter of 2013.
Another possible candidate is insider-outsider Jean Boivin, a respected monetary policy researcher who was deputy governor at the bank from 2010 until last month, when he became the Finance Department's representative at G7 and Group of 20 meetings, the job once held by Macklem. As Boivin was part of the Bank of Canada consensus, his appointment would also signal no change.
An outsider floated by Nomura economist Charles St-Arnaud is Don Drummond, a former federal finance official who helped wrestle down Canada's large budget deficit in the 1990s.
Other possibilities are the remaining deputy governors at the Bank of Canada: Agathe Cote, John Murray and Tim Lane -- who of course are under Carney and Macklem in the central bank pecking order.
McMaster economist Scarth noted that Flaherty praised Carney's service in his announcement on Monday morning, and that suggested Carney would not want to appoint somebody who would be likely to cause change.
"We are sort of the envy of the world in financial matters generally. If it ain't broke, don't fix it," Scarth said. - Reuters
Britain favours credentials over countrymen for BoE's top job
NEW YORK: Britain's choice of a Canadian to run the Bank of England could usher central bankers into the realm of globe-trotting elites that dominate the top jobs in business and sports.
When Bank of Canada Governor Mark Carney takes over the Bank's next summer, as announced Monday, it will be the first time a foreigner has held the top position at a major national central bank.
Britons are used to not worrying about nationality and embracing professional credentials instead, allowing foreigners to run their national football teams as well as top companies.
The British central bank was already trend-setter in welcoming outsiders in its ranks. Americans DeAnne Julius and, until this year, Adam Posen, served as members of the Bank of England's decision-making Monetary Policy Committee.
By contrast, few Americans could imagine the U.S. president nominating a Briton to even sit on the Board of Governors of the Federal Reserve, much less run it.
But as the world of finance becomes increasingly globalized, appointments like Carney's could become less unusual, some say.
"We don't think twice about having the best surgeon or the best engineer or the best mathematician. Having the best central banker is not a bad idea," said Kim Schoenholtz, director of the Center for Global Economy and Business at New York University, and a former chief economist at Citigroup.
"This is a professionalization of the craft of central banking."
In explaining the surprising decision, Chancellor of the Exchequer George Osborne stressed Carney's "fresh perspective" and called him "the very best" choice for the job, before nodding to potential concerns about loyalty.
"As a Canadian Citizen, is subject to Her Majesty the Queen," Osborne said, adding that, though it is not required, he will apply for British citizenship.
Even so, Carney may feel out of place in the Bank of England's grandiose "parlours," or being accompanied through its marble halls by "pinks" - the bank's iconic doormen who still wear top hats and pink tailcoats.
A MIRROR OF MULTINATIONALS'
It is not uncommon for governments to trust non-citizens in matters of national importance.
The Papal Swiss Guards, once leased out by their government as mercenaries, still protect the Vatican, and the French Foreign Legion is composed mostly of non-French volunteers who fight for a country that is not their own.
Countries welcome promising Olympic athletes from abroad to compete on their behalf, and businesses with strong ties to their homeland look for leaders beyond their borders.
In one of countless examples of the private sector importing top executives, Anshu Jain, a British citizen of Indian descent, recently became the head of Deutsche Bank. At the time, Jain did not speak German.
But the protection of the money in people's pockets has been considered, at least until now, largely a national affair.
Carney runs the risk of attracting jingoistic criticism if the struggling British economy fails to gain momentum in the years to come.
"In that sense, he will be restricted," said Edwin Truman, senior fellow at the Peterson Institute for International Economics, and a former director of the Federal Reserve Board's international finance division.
"Will he be more or less inclined to clash with the Parliament and government on fiscal policy?" Truman said. "I would think he would do less of that."
Peter Spiro, a citizenship law expert and professor at Temple University, said the traditional sense of national loyalty was being tested as business and finance goes global, and so does the expertise required to regulate it.
"Those questions have mostly been taken over by globalization," he said, adding that Carney's selection is "a mirror of what's going on in the context of multinationals." - Reuters
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