The Bank is ripe for revolution – Mark Carney’s task is huge

 
Allister Heath
IT is often said that Britain doesn’t do revolutions. There is, of course, some truth to that: we have staved off invasions, our political system has been remarkably stable, we’ve been spared communist and fascist regimes, the monarchy is thriving and property rights and the rule of law have survived for an extraordinarily long period of time.

But the reality is that sweeping, drastic changes have regularly taken place – but in Britain successful revolutionaries adopt many of the habits of the order they replace, duping onlookers into underestimating the extent of their reforms. German monarchs became quintessentially British; 1960s establishment-hating pop stars bought country piles from bankrupt aristocrats, hiring butlers and buying Savile Row suits; and the latest wave of self-made entrepreneurs, Russian oligarchs and international financiers is going the same way, accepting honours, sending their kids to traditional schools and taking on some of the airs of the old establishment.

With Mark Carney, a charismatic and ambitious 48-year old Canadian, taking over as Governor of the Bank of England this morning, I hope that the same will now happen to that hugely powerful British institution. Its beautiful buildings on Threadneedle Street will remain intact, of course, as will the uniformed, top hatted porters. But one must hope that an unstoppable tide of intellectual, managerial and practical change will now sweep the confines of the Old Lady (as the Bank is dubbed) in a very British revolution. The only way this could happen was for an outsider to be appointed – and that is why this newspaper welcomed Carney’s hiring, one of George Osborne’s few masterstrokes.

Under the soon to be Lord King, the Bank became too academic, too detached from the City (though that was of course partly due to Gordon Brown’s incompetent reforms and creation of the FSA), run in an autocratic manner, with old-fashioned top-down management techniques. For all its rigour, its economic models were poor. The Bank failed when it really mattered, allowing a horrendous bubble to build up (despite warnings from some economists), mismanaging the start of the crisis, eventually imposing a pro-cyclical set of reforms which have intensified the recession, and using unhelpful, self-serving language that helped promote a simplistic and incorrect interpretation of the financial crisis. Under King, the Bank sometimes seemed to dislike the companies it now once more regulates, misunderstanding its traditional role: to be the City’s all-powerful primus inter pares, to supervise finance to make it stronger and safer and crack down on poor behaviour, but certainly not to question its very existence.

It is true that the hype surrounding Carney’s appointment has got out of control, and that far too much is now being expected of him. His legacy in Canada is questionable. But he will be a breath of fresh air in London. He isn’t tainted by the UK (or US) boom and bust; his decisions can be made objectively. Even though I suspect I will soon be disagreeing with his monetary policy decisions, he is clearly interested in thinking about new ideas, such as nominal GDP targeting. He even discussed the ideas of Austrian economists in a 2012 speech, though he doesn’t actually agree.

It is in the area of regulation where he will make the greatest changes. His approach looks as if it will be tough but fair, and aware that the City needs both to be managed better and more prudently while being allowed to grow and create jobs and wealth. He needs to get the Bank to speak with a unified voice: there should be no more freelancing. He needs to end to the endless hiking of capital requirements. He needs to emphasise the need to ban bailouts and finalise resolution mechanisms. It’s a massive job – but City A.M. wishes Governor Mark Carney the very best of luck.

allister.heath@cityam.com
Follow me on Twitter: @allisterheath