Alistair Darling has likened the Bank of England, as envisaged under the Coalition’s regulatory reform, to a “structure that is reminiscent of Louis XIV’s court of the Sun King”.
One which, according to the former Chancellor, is “wholly inappropriate for the 21st century”.
Darling was speaking to The Sunday Telegraph at the weekend and since then we have published profiles of the three main contenders. Having already run pieces on Lord Turner , chairman of the Financial Services Authority, and Lord O’Donnell , the former head of the Civil Service, we now feature Paul Tucker , current deputy governor of the Bank of England in charge of financial stability.
It is not inevitable the new Governor will come from one of these three, but it is highly likely. It’s worth saying there is talent within the Bank, apart from Tucker. Andrew Haldane is one of the Bank’s best thinkers. If the job skipped a generation then Haldane, executive director of financial stability, might be your man.
There are also overseas candidates. Mark Carney, governor of the Bank of Canada, is often mentioned. But, while having intimate knowledge of Canada’s financial system would obviously be a help when running the UK’s, the two are not comparable in size and complexity. The UK’s monetary and regulatory system remains a ticking bomb, exposed to dangerous turbulence from Europe (Chicago Options: ^REURUSD - news) . Canada is far from being a mere subset of the US, but it simply doesn’t provide the most compelling work experience for defusing the UK’s problems.
Close-hand experience of ultra-crises, such as those witnessed here in recent years, is a must for any candidate. Which brings us back to the three main home-grown contenders. All of them have seen both the boom and the bust at close quarters and should be oven-ready for the job.
Lord Turner has had a glittering career, but a propensity to end up getting the big judgment calls wrong be it his membership of the SDP, his wish to join the euro, his views on climate-change policy or, more recently, his handling of the FSA’s investigations into RBS (LSE: RBS.L - news) and HBOS probably weighs against him in the eyes of George Osborne.
Lord O’Donnell’s application may also struggle when it comes to the “relevant experience” section. He was, along with Ed Balls, the main architect of New Labour’s economic policy.
Gordon Brown’s notion of prudence was as much his as was the whole regulatory construct of taking banking supervision away from the Bank in 1997 and giving it to the ill-fated FSA. Osborne surely can’t give the job of fixing the regulatory system to the man who helped create the powder keg that blew it up in the first place.
The detail of how and why the FSA was created, and the thinking behind Brown’s “prudence” policy, is helpfully contained in the 2002 publication Reforming Britain’s Economic and Financial Policy Towards Greater Economic Stability , a collection of Labour essays and speeches edited by Ed Balls and the then plain Gus O’Donnell with a foreword by their political patron Gordon Brown.
It still strikes many as odd that Lord O’Donnell would put his name to such an overtly political book when he was a civil servant at the Treasury. Anyway, the book claims to constitute a “coherent strategy to deliver economic stability and higher employment, growth and rising prosperity” when, in fact, it was a handbook for the opposite.
Which leaves Paul Tucker. Most of his career has been spent at the Bank, so he’s undoubtedly been present at the crime scene. But the principle powers to stop banks misbehaving during the boom lay with the FSA.
His boss, Sir Mervyn King, wielded more influence than Tucker over interest rates during this period and Tucker did give sermons preaching the dangers of credit derivatives and the like. But no one was listening. He has steered an apolitical line throughout recent years and his knowledge and experience of central banking is streets ahead of his rivals.
His role on the G20 Financial Stability Board and the Basel Committee give him a further advantage, while a recent scrape over Libor will prove a footnote in the history of the financial crisis it would be odd if he didn’t bear some battle scars from recent years.
The Chancellor may be planning a surprise candidate for the role of a Governor who will assume unprecedented powers a decision that would undoubtedly disturb markets. But I think the biggest surprise would be not appointing Tucker. If there’s one thing the financial system could do without, it’s any more surprises.