11 Sep 2012

Bank of England job vacancy points to Vickers

It is the most powerful job ever advertised in Britain. It’s not just that the Bank of England Governor sets monetary policy, interest rates for savers and for borrowers.

Nor even is it just that Sir Mervyn King managed de facto to get Bob Diamond fired from Barclays. Next year, the bank gains huge new powers over Britain’s banks and, indeed, the entire process of credit creation.

Not just that. This appointment, made by the Queen on the advice of the PM and chancellor (in turn on the advice of interviews conducted by senior Treasury mandarins) by the end of the year, will be for a strictly non-renewable eight-year term. From 2013 until 2021, the new BoE governor will have an incredible degree of power and autonomy.

Today, the chancellor announced the publication of a job advert, detailed below. This is the first time a job like this has been advertised. I deduce two important signals from the text. Firstly, the emphasis is on finance and financial stability. The candidate “will have an advanced understanding of financial markets and good economic knowledge”.

Good economic knowledge? The presumption has been for the past decade that the governor should be a world-class macroeconomist. This suggests that the future chair of the interest rate-setting monetary policy committee does not even need to be a formally trained economist. He or she, who decides when to unwind quantitative easing, for example, might not have an economics degree.

No, the emphasis is clearly on the bank’s new financial functions, and the Treasury requires the new governor possesses an ‘advanced understanding’ of those financial markets.

Second is the banker question. The Treasury specifically will look at bankers or former bankers. The candidate will have experience “working in, or with, a central bank or similar institution; or will have worked at the most senior level in a major bank or other financial institution.”

But there is a caveat for those bankers recently placed under an ethical cloud: “He or she will be a strong communicator, have good interpersonal skills and will be a person of undisputed integrity and standing.” That rules out quite a few.

Where does that leave us? Door wide open for the Deputy Governor Paul Tucker, but also perhaps even more for Lord Turner of the FSA (who has been busy making speeches and writing letters to Barclays). A dark horse like Jim O’Neill of Goldmans should not be discounted. There is no specific direction against a non-Briton, so perhaps those stories about Canadian central bank chief Mark Carney will re-emerge.

What is startling, however, given the specific direction on high-level bank knowledge, is the lack of bankers likely to make the shortlist. Three very viable candidates come from banks with serious recent question marks about their institutions’ conduct: Lord Green, John Varley, and Peter Sands. Imagine their Treasury Select Committee confirmation hearings.

Then again, does it make any sense to rule out a figure like Sands, who has detailed experience of the sort of macroprudential credit controls in Asia, that will be used to help prevent another calamitous credit bubble in the future? Put more simply, does the fact that Fred the Shred, Adam Applegarth, Peter Cummings and even Bob Diamond could not be considered make an argument for no former banker doing a good job for Britain?

There is another candidate, who I think this job ad seems to have been designed for. In-depth knowledge of financial markets and new regulations, and a detailed vision of future banking, but also a reputed economist who has been avoiding controversy over the past year. Somebody who would, I am sure, be embraced by both sides of the coalition, and the opposition. One of the first members of the monetary policy committee, and the former chief economist of the Bank of England. Sir John Vickers. 

Having said that, this is a unique opportunity for Britain to assess its monetary policy. Is QE really working? If it is, why are the Germans so against it? Is an inflation target of 2 per cent plausible in 2021, when the new governor’s term ends? The new governor will have an unwanted role too in settling some difficult economic and currency questions around Alex Salmond’s race for Scottish independence. Perhaps a Scot should apply?

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