TO my great surprise, George Osborne has just pulled off an amazing hire. Appointing a new governor of the Bank of England was always going to be Osborne’s most important decision. I thought the chancellor would go for the easy choice – I was wrong. His wooing of Mark Carney, who will shake up the Bank and draw a line under the failures of the financial crisis, was inspired. Within the bounds of the mainstream consensus, he is the best possible governor and financial regulator that Britain could possibly hope for right now.
The fact that he is not British will make his communications with the public more challenging, especially when tough decisions need to be taken – but it sends a signal to the world that the City remains global and open, an international marketplace at the heart of a trading nation.
His appointment will guarantee a coherent and stable approach. He wants to reform finance to make sure it doesn’t explode every few years – and to make sure that if firms do go bust, special wind-down and resolution procedures kick-in, protecting taxpayers from having to bail out banks.
Crucially, however, he is a tough reformer, not a vandal. He is no soft touch – but neither does he want to turn Canary Wharf into a ghost town. He oozes reasonableness. He doesn’t want to destroy universal banks, unlike some in Britain. His appointment shows Osborne still wants big financial firms to be based here. Carney rightly doesn’t like the Volcker rule, so beloved of banker-bashers; the Canadian, who actually knows what he is talking about, sees that one cannot distinguish between prop trading and hedging. He wants to reform behaviour, reduce leverage and improve supervision, not ditch scale and complexity for the sake of it. He is too confident in Basel III– but at least that is a possible framework. Most important of all, he understands the trade-off between making banks safer and their ability to lend. He is a breath of fresh air. It is a tragedy that he wasn’t around before the flawed Vickers Commission, whose findings won’t solve anything.
Carney is hardly perfect. I partly disagree with his approach to monetary policy, though he understands the danger of bubbles. The Canadian economy is not in as good a state as some have argued. But Carney, unlike some, listens to his most interesting critics: he recently sought to address (though ultimately dismissed too readily) the concerns of Austrian school economists, for example. Carney will also be a fearless, independent figure who will happily contradict Osborne. Brussels’ second rate regulators will suddenly face a formidable alternative. Yesterday was therefore an unusually good day for the British economy, for the City and for all of our future jobs and prosperity.