Outgoing Bank of Canada governor and Mark Carney will face British MPs in London tomorrow a few months before taking the helm of the Bank of England on July 1.
The hearing before the British Treasury Select committee is a first in the history of the 319-years old BoE. In part, this reflects increased scrutiny of the central bank by elected officials at a time when it is taking on new, sweeping powers, such as oversight of Britain’s financial institutions.
But the hearing, of course, will also be a chance for British MPs to grill the first foreigner to head what the British affectionately call the “Old Lady of Threadneedle Street.” Is the Canuck really better than any of the smart Britons who were vying for the job? British lawmakers and the media have been wondering since Carney’s appointment in November.
Carney has, if you will, an “Obama problem.” In January 2009, the first African American president of the United States took charge at a time when the country had plunged in the worst recession since the 1930s. In 2013, the first Canadian BoE governor will take the helm of monetary policy in a United Kingdom that is possibly facing a “triple-dip” economic downturn. And we all know what happened to Obama’s halo…
And Carney certainly hasn’t made things easier for himself. If you expected the guy who famously took on JPMorgan CEO Jamie Dimon to thread carefully in Britain, you were… well, wrong. Since the day of his appointment, Carney has been sending clear hints that he’s going to do differently at the BoE — even if that meant bruising the ego of his predecessor, Sir Mervyn King.
But if one might applaud Carney’s boldness when it comes to bringing fresh ideas to a BoE — after all, that’s why they poached him from the Bank of Canada — the governor has also shown a less commendable lack of tact when he negotiated an astronomical pay ($1.3 million a year, if you include benefits) at a time when most Britons can’t get a raise. Carney also demanded to serve a shortened term of five years rather than the customary eight. Even the Financial Times, which is clearly part of the governor’s fan base among the British press, had some reservations about these special requests: “No one doubts that the governorship is an extremely challenging job, or that Mr Carney is a very able candidate. But [Chancellor of the Exchequer George] Osborne’s willingness to bend over backwards to secure the Canadian’s services still raises questions.”
British MPs don’t have the power to veto Carney’s appointment like U.S. Congressmen do with the president’s cabinet picks. But tomorrow’s job interview represent the governor’s first public appearance in Britain — how he does will set the tone of his relationship with British politicians and the public.
So, here’s a list of the questions British MPs are likely to put to Carney tomorrow:
You said you’d do things differently. Details please.
Carney has famously said he doesn’t believe the BoE has “maxed out” options to help re-start the sputtering engine of the British economy. That was a jab at current the BoE chief, who, after slashing interest rates and trying some quantitative easing, thinks there isn’t much left to do. ( King, for his part, shot right back, calling Carney’s ideas “wishful thinking.”)
According to Carney, the central bank must get creative and use extraordinary policy tools until the economy has reached “escape velocity” and is able to grow on its own. One of the unconventional tools Carney seems to be contemplating is NGDP targeting — linking interest rate movements to growth in non-inflation-adjusted GDP rather than ups and downs in price levels. The idea has some enthusiastic supporters, but also a fair number of critics.
Tomorrow, Carney will need to spell out what exactly he has in mind. As the FT warned, no one expects “magic solutions,” but “evasiveness will be utterly unacceptable.”
Are you going to ask for the central bank’s mandate to be modified?
If Carney wants to move away from inflation-targeting and tie interest rates to nominal GDP or other measures of the economy’s performance, such as unemployment, as Fed Chairman Ben Bernanke just did, it will need permission to do so from Osborne. But the Chancellor, who called Carney “quite simply” the best person in the world to take the BoE top job, now seems have gotten cold feet about the idea of experimenting with economic output targets.
You’re going to be the most powerful central banker in British history. Tell us more about how you intend to run the shop: are you a team-player or a bit of a control freak?
The BoE will soon take on the job of regulating financial institutions, making sure banks don’t accumulate excessive risks that might bring the house down when things go sour in the global economy and financial markets. That gives Carney unprecedented powers and British MPs are understandably keen to know how he’s going to exercise that extraordinary authority.
“The question is, does the governor become the constitutional monarch of the bank with the power but who will defer to the advisers of the committees, or does he become the emperor of the bank?,” asked Liberal Democrat MP John Thurso.
Carney seems entirely aware of this issue — just check out this quote of his form the latest presser on Canada’s Monetary Policy Report (Sun Media’s David Akin’s had just popped the now routine, annoying question about Scott Brison):
I stand by everything that I’ve done over the course of my term, in that it’s the best effort — collectively, of course, it’s the Bank of Canada, it’s not an individual, but collectively — that we could do to fulfill our mandates.
Tell us why you deserve to be paid three time as much as they guy who used to do the job before you.
Carney’s paycheque, which includes a 390,000 housing allowance, is $1.3 million. King’s is only about $470,000. The Guardian has clearly taken this as confirmation of its suspicions the Canadian, who formerly worked at Goldman Sachs, is a true member of “the corporate financial elite,” a one-percenter at heart who’ll be friendly to the fat cats and neglect the little guy. Though that view ignores Carney’s well-documented record of being tough on the big banks, the governor still have to make a strong case for why he deserves every penny he’s asked for.
What about all the Canadian chatter about you possibly entering politics…. just kidding — we don’t really care about that.
For all the noise the Canadian press has made about this issue, British journalists and MPs seem to be utterly uninterested in the governor’s real or imagined aspirations to the Liberal leadership.