Reuters: Regulatory News: RPT-BOE FOCUS-New Bank of England chief needed: Superhumans only

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RPT-BOE FOCUS-New Bank of England chief needed: Superhumans only May 15th 2012, 07:00 Tue May 15, 2012 3:00am EDT By David Milliken and Fiona Shaikh LONDON May 14 (Reuters) - A huge change in the Bank of England's remit has thrown open the race for a successor to Governor Mervyn King, leading to one critique that no one but a "superhuman" need apply. The central bank is about to take on a much broader role regulating Britain's financial system on tops of its tradition role in setting monetary policy. King's academic prowess made him well suited to the monetary policy-focused role he took on in 2003. But the financial crisis has led to the bank being given a much wider, more politicised, range of tasks, including overseeing Britain's banking system. For finance minister George Osborne, it is a difficult appointment. Former BoE policymaker Charles Goodhart likens the appointment of the bank's chief to a mediaeval English king selecting an archbishop - a powerful figure who is nearly impossible to either displace or ignore once in office. "It may not be the perfect analogy, but it's like the church and the crown - they are always slightly at odds," he said. BoE Deputy Governor Paul Tucker is currently leading the betting odds for the top job, followed by former Barclays chief executive John Varley, former top civil servant Gus O'Donnell, Financial Services Authority chairman Adair Turner, ex-HSBC chairman Stephen Green and Goldman Sachs economist Jim O'Neill. The government has reason to thank the King's BoE for running a loose monetary policy that has supported the economy and helped keep down the cost of public borrowing as it struggles with the aftermath of Britain's deepest slump since the 1930s. But King was in charge during the 2007-08 financial crisis, a period when he and the bank were criticised for handling the unfolding drama too slowly. Osborne's predecessor, Alistair Darling, approved King for a second term with a certain degree of reluctance and there is now a chorus of critics saying a more deft regulatory and managerial hand is needed. "The days of the theoretical economist are dead and over," said David Blanchflower, a former BoE policymaker who has become the central bank's harshest critic. "How dare the same people who missed all of this, how can they still be in control?" LONG ODDS A sense that the government, lawmakers and many commentators would prefer someone from outside the BoE is probably the biggest threat to Tucker, who has spent his career at the BoE. Betting markets only place Tucker at 3/1 to get the top job, with other names - some plausible, some not - regularly popping up in Britain's media. Historically, the government has tended to appoint commercial bankers familiar with the effect of policy on day-to-day lending into the top BoE job, and this would be supported by some in the City, who believe the BoE under King suffered from too academic a focus. "What they really, really need is someone who has direct hands-on business experience," said Marc Ostwald, a fixed income strategist at Monument Securities. But after the financial crisis, a banker would be a tough sell politically, said John Gieve, who was Tucker's predecessor and as a former senior civil servant, a rare recent external appointment to the BoE. "If you're appointing a banker, they definitely have to be at home in macroeconomic policy, as banking credentials are not enough - in fact they raise as many questions as they answer," Gieve said. If this is the case, Varley might be a longer shot than the 7/2 odds he is trading at suggest. Moreover, he is a lawyer rather than an economist by training. The betting odds on Green and O'Neill are no better at 5/1, and a former banker would probably be opposed by Osborne's coalition partners, the Liberal Democrats. O'Donnell, currently trading at 4/1, is seen as a stronger candidate if the government does not want a BoE insider. "O'Donnell looks like a clean pair of hands," Blanchflower said. "You have to have someone who's a chairman of the board, because of all this power that's being handed to the Bank." A university lecturer in economics before joining the finance ministry, O'Donnell rose to head Britain's civil service and become the chief advisor to prime ministers Tony Blair, Gordon Brown and David Cameron. Little is known about his views on economics or financial regulation, but a rare glimpse came from a leaked memo in 2010 in which he urged Cameron and Osborne to prepare a 'plan B' in case Britain's economy tanked following their fiscal austerity plan - a key call of the opposition Labour Party and one which the government had publicly resisted. If a regulatory expert is needed, and Tucker is not wanted because he is too much of an insider, then FSA chairman Turner would fit the bill. He joined the FSA days before investment bank Lehman Brothers collapsed - so cannot be tarred with failing to foresee the crisis - and Gieve praised him as having come up with some of the best regulatory ideas to emerge from the crisis. Osborne's biggest challenge will be deciding where he wants to compromise, as whoever is picked will have shortcomings in at least one area. "Wanted, a new governor of the Bank of England. Only superhumans need apply," joked Labour's finance spokesman Ed Balls in a recent newspaper article. He may not have been wrong. Link this Share this Digg this Email Reprints

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