Square Mile Magazine, April 2013. Original article (p77).
The 100 most powerful people in the City
Number 1: The Governor
He is at the heart of the City of London, but as Sir Mervyn King prepares to bow out after a decade as the head of the Bank of England, it is a much bigger picture that dominates the Governor’s mind. As the June handover date for Mark Carney’s tenure approaches, King’s tone has grown increasingly frank and critical over the past few months. King is keen on decisive action, arguing that Royal Bank of Scotland should be broken up into a “good” and “bad” bank. In part this would ring-fence high-street banking from more speculative operations and deal with the ‘too big to fail’ problem once and for all, but it would also put RBS in fighting form to support economic recovery. King argued for this move also when the economic crisis first hit in 2008, but time has demonstrated the extent of the mess, and that the clean-up will take a lot longer than anyone likes to hear.
This newfound boldness could be read as a desire to secure a legacy as a reformer, or maybe a streak of fearlessness has set upon the economist as he eyes up retirement. The Bank of England was stripped of its regulatory powers in 1997, and hence could do little but scorn and tut as the crisis approached; still, King has admitted the Bank of England could have done more to warn about the impending economic collapse. Said King last year in a BBC Today Programme Lecture: “We should have shouted from the rooftops that a system had been built in which banks were too important to fail, that banks had grown too quickly and borrowed too much, and that so-called ‘light-touch’ regulation hadn’t prevented any of this.”
It may be a desire to make good on this perceived mistake that encourages King to push for prudence as the global ‘Basel III’ standards are being fleshed out, claiming it is not enough for banks to hold quality capital of at least 3% of their total. In the same spirit, King is in no mood to listen to bankers who want to keep more of their bonuses by delaying payment until tax rates fall from 50p to 45p. Stressed King when discussing the matter with the Commons Treasury Committee: “In the long run, financial institutions … do depend on goodwill from the rest of society.” Bankers may call it good tax planning, but this is one insult too far in a time of bail-outs, spending cuts and rate-fixing scandals, at least in King’s big picture.
Hailed as an inspired choice from a new generation of central bankers, Mark Carney will pack up as head of the Bank of Canada and move to London in June. King (64), born in Chesham Bois and educated at Cambridge, can look back at a career as an economist, lecturer and public servant at the Bank of England; his successor, however, hails from a banking background, with 13 years with Goldman Sachs before joining the Bank of Canada. Carney (48), born in Canada’s Northwest Territories and educated at Harvard and Oxford, has pledged his leadership to be one of transparency and accountability when he takes over the big seat at Threadneedle. While having expressed admiration for the Bank’s handling of the financial crisis, Carney’s stance does however differ from that of King as he believes central banks have yet to exhaust their arsenal to boost economic growth. Even if it means inflation stays higher, Carney told the World Economic Forum in Davos in January that monetary policy should continue to be utilised until economies achieved “escape velocity”.
Carney’s so-called radical solutions have been hailed as partly the reason Canada came through the recession in decent nick, and Carney has hinted he will be bringing his more unconventional thinking to Britain. As chairman of the Financial Stability Board, the global financial watchdog, Carney has previously pushed for stricter rules for capital and liquidity, but exactly how hard he will push the British banking sector is anyone’s guess. One challenge for Carney will be to negotiate with the Monetary Policy Committee over interest rates; in stark contrast to Britain, Canadian MPC members tend not to publicly disagree with their leader. New laws will give the Bank new authority over financial regulation, meaning that by the time Carney steps in, no other head of a major central bank will have more power.