Today’s shocking announcement that Bank of Canada governor, Mark Carney, has been poached by the Bank of England is an earthquake in global financial circles. Its unprecedented on several levels: a foreigner has been named to head a major central bank, the person in question was currently in the middle of his term at another central bank, the foreigner in question had explicitly ruled himself out of the running for the job in question, etc.
But above all else, his “demotion” to the BoE (as a clever wag puts it) heralds that those advocating for smart regulations aren’t entirely fighting a losing cause, an issue I perhaps obliquely referred to when I posted on the very public spat between Carney and JPMorgan head, Jamie Dimon, last year. If you boil it down, the issue of which side of the fence to land on the less or more regulation (and its enforcement) front can simply be described with a sports analogy: the need for strong referees in order to enforce the rules in the game (not having rules is just anarchy). I don’t think Jamie’s delicate American sensibilities were expecting a public, effective pushback from a so-called public servant when that happened.
As much as the near universal acclaim this pick is generating, one shouldn’t lose sight of the fact that England’s challenges are much worse than Canada’s. If Mark Carney was picked for any one reason above all others, its because the BoE is trying to institute a regulatory framework closer to Canada’s (if not deeper). The above-linked Economist article explains this framework succinctly:
From next year the Bank of England will resume the job of supervising and regulating individual banks. It will be given “macro-prudential” tools, such as tweaking bank-capital requirements over the business cycle, to keep the financial system safe. And it will continue to set monetary policy to control inflation. Mr Carney knows a lot about all three aspects of his new job.
Only the last aspect has been the BoE’s forte in the past. The other two are uncharted territories for Threadneedle, but not so for Carney and Canada (aka, “land lost in time”). Which is why he was hired; to take a jackhammer to the BoE’s current operations and practice. I’d be curious to see how much he succeeds.
I’m also very curious to see how much British politicians, agencies and other economists challenge Carney. If there is one disturbing aspect the almost 100% support this decision has gotten from everyone in Britain, is that the last thing any major economy needs is another Maestro before whom all (British) mortals tremble.
If you have a passing interest in this issue, watch the following 25-minute BBC interview of Mark Carney from a few months ago (and his now-famous response of “Both.” to the question “Is that a no or never?” to the BoE job at about the 20-minute mark).