Saturday, 1 December 2012

The Bank of England: There's a new Sheriff in town!

There's a new Sheriff coming to town.

So says George Osborne, the UK's Chancellor of the Exchequer, who named Mark Carney as the next Governor of the Bank of England come June 2013 when the current Governor steps down.
A step into the unknown perhaps, with an outside appointment as opposed to the typical internal succession, but it can't come soon enough for me given the patchy track record of the current Governor with his one tool fits all approach. 
A Manchester Screwdriver perhaps?

In addition there is the BoE's questionable culture and capability that has recently been highlighted in the publication of 3 independent reviews commissioned by the BoE.  

Summary news reports gleefully picked out that the Bank's governance was deemed "defective" and that its  forecasting abilities have even deteriorated since the crisis providing less accuracy than external forecasts ( Bank of England governance 'defective').

An assessment of the situation by Andrew Tyrie - Treasury Select Committee, was that the reviews and the BoE's commissioning of them was too little too late:

"The decision to commission these reviews fell well short of what was required," 

"A comprehensive review should already have taken place, not just to enable the Bank to learn from its past mistakes but also to inform the legislation currently before Parliament.

"The fact that it took so long to obtain even these reports illustrates the Bank's defective governance." ( Bank of England governance 'defective').

Following publication of the reviews, the Independent ('Autocratic management' at Bank of England under fire), reported one "former bank economist" as saying: 

"The process within the Bank was one of second-guessing what your superiors and specifically Mervyn King would like you to think about a certain subject before offering your opinion on it."

"Agreeing with the Governor was the route to advancement."

"It's all a bit pointless if you are just going to reflect back what somebody already thinks."

"There were a lot of people at the Bank being paid vast amounts of money to hold a mirror up to Mervyn."

Statements which also appear consistent with those taken from the report completed by former JP Morgan joint chief executive, Bill Winters, who warned that there:
"appears to be some tendency for them to filter recommendations in such a way as to maximise the likelihood that senior staff will find the recommendation palatable".('Autocratic management' at Bank of England under fire).

Coming back to forecasting accuracy though, it is interesting to read extracts from the report by former Federal Reserve statistics director David Stockton which:

 "raised doubts over the MPC's "overly optimistic" recovery predictions. 
The committee had made "somewhat larger forecast errors for growth" than the average of external forecasters, and failed to apply "systematic, detailed quantitative analysis" to explain its errors, ('Autocratic management' at Bank of England under fire)

Not pretty reading at all and a root and branch improvement seems long overdue.

So who is Mark Carney?

I've not looked too deeply into his track record but "the 2012 Central Bank Governor of the Year" (Euromoney magazine), is highly rated given his documented role in helping to steer the Canadian economy through the crisis. 
A journey which has seen the Canadian economy outperform its G7 peers to become "the first G7 nation to have both its GDP and employment recover to pre-crisis levels" (

Recovering to pre-crisis levels sounds to me to be a pretty significant achievement. 
But it would be an even greater achievement if he could repeat the feat as the Governor of the Bank of England!

A brave (possibly), but seemingly sensible appointment that might just be the best Christmas present the UK could hope for.

But its a shame we can't unwrap it until June next year.

Related article links: Bank of England governance 'defective' 'Autocratic management' at Bank of England under fire Bank of Canada's Mark Carney

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