1 Introduction
1. On 7 February 2013 Bank of Canada Governor
Dr Mark Carney, chosen by the Government as the next Governor
of the Bank of England, gave evidence to the Treasury Committee
in what amounted to a pre-appointment hearing. This was an unprecedented
event: no Governor of the Bank of England had previously given
evidence to Parliament in advance of taking office.
The role of the Governor of the
Bank of England
2. The Financial Services Act 2012 has entirely
reformed UK financial regulation and places the Governor of the
Bank of England at the centre of the financial system. The Cabinet
Office described the formidable extent of the role as follows
when advertising for applicants:
The Governor leads the Bank of England, and plays
an important role in setting monetary and regulatory policy, chairing
the Monetary Policy Committee, the Financial Policy Committee
and (from next year) the board of the Prudential Regulation Authority.
The Governor represents the Bank in important international fora,
such as the G7, G20, the European Systemic Risk Board and the
Bank for International Settlements in Basel. The Governor is an
executive member of the Bank's Court of Directors.
The Governor will work closely with the Chancellor
of the Exchequer and HM Treasury, which is responsible for setting
the framework under which the Bank operates.
The new Governor will lead the Bank through major
reforms to the regulatory system, including the transfer of new
responsibilities that will see the Bank take the lead in safeguarding
the stability of the UK financial system.[1]
The process of appointment of
the Governor
3. When Mervyn King was appointed Governor in
2003, the then Treasury Committee did not feel it necessary to
hold a hearing with him before he took up his duties, as he was
already a member of the MPC—the Committee had held a hearing
with him in 1998 after his appointment as Deputy Governor. It
did, however, hold a hearing with Mervyn King in July 2003, shortly
after he took up the post, on the prospects for his term of office.
4. The Treasury Committee recommended in 2007
that the posts of Governor and the two Deputy Governors should
be recruited by open advertisement.[2]
When Mervyn King was reappointed for five years with effect from
July 2008, the Committee held a hearing with him in April and
subsequently published a Report. In June 2008 the then Chancellor
of the Exchequer, the Rt Hon Alistair Darling MP, told the Treasury
Committee that "In future, the Government will advertise
vacancies for the Governor and Deputy Governors of the Bank of
England".[3]
5. Sir Mervyn King's second five year term as
Governor of the Bank of England ends on 30 June 2013. In September
2012 the Government for the first time openly advertised the post
of Governor of the Bank, seeking applications by 8 October 2012.
The candidate the Government sought was described as follows:
The successful candidate must demonstrate that they
can successfully lead, influence and manage the change in the
Bank's responsibilities, inspiring confidence and credibility
both within the Bank, throughout financial markets and in the
wider public arena.
Prior Experience
The successful candidate will have substantial experience
in one or more of the following:
working in, or involvement with, central banking
(for example a central bank, the Bank for International Settlements,
the International Monetary Fund, or similar institutions);
working at the most senior level of a major bank
or other financial institution.
Role requirements
Financial market and economic knowledge.
The successful candidate will have extensive knowledge and experience
of financial markets and the risk cultures therein, and be credible
on both micro- and macro-economic issues domestically and internationally.
Leadership and management skills.
The ability to be an effective leader of the senior management
team, to encourage teamwork and to develop talent; given the breadth
of the Bank's responsibilities, the ability to delegate will be
particularly important. The successful candidate will have led
a large organisation and will demonstrate personal effectiveness,
determination and resilience.
Communication, influencing and interpersonal skills.
The ability to build good relationships with colleagues within
the Bank of England and with other partners, such as the Chancellor
of the Exchequer and HM Treasury, market participants, and international
counterparts. To be able to communicate with authority and credibility
to Parliament, the media, the markets and the wider public.
Policy skills. The ability
to design frameworks and develop policies that will be appropriate
for multiple scenarios, and the ability to implement those new
policies in a fast-moving environment. This will require significant
understanding of the workings of government and regulators—gained
through membership of relevant public sector boards, industry
bodies or working groups if not through direct experience in policy
leadership roles. Acute political sensitivity and awareness will
be crucial.
Undisputed integrity and standing.
The ability to maintain discretion and engender trust in staff,
peers and stakeholders. A willingness to abide by necessary conflict
of interest constraints.[4]
6. The recruitment panel was chaired by Sir Nicholas
Macpherson, Permanent Secretary at the Treasury. Sir David Lees,
Chairman of the Court of the Bank of England, assisted in conducting
the process. Nine candidates were shortlisted.[5]
7. The Chancellor himself interviewed the six
candidates "deemed appointable" by the panel.[6]
He then made his recommendation to the Prime Minister, who made
the same recommendation to the Queen, who approved the appointment.
The Chancellor announced to the House on Monday 26 November that
Dr Mark Carney, at present Governor of the Bank of Canada, would
be the next Governor in succession to Sir Mervyn King.[7]
Special arrangements for Dr Carney
8. Dr Carney had said to the BBC in August 2012
that he was not considering the job of Governor of the Bank of
England.[8] He told us
the reasons that he did not want the job at that stage:
[...] there was a series of conversations over the
course of last year that I had with the Permanent Secretary and
with the Chancellor related to this position. My view in the summer
of last year and right up and including the 8 October deadline
for an application was to not proceed with an application for
a few reasons. One was my current responsibilities at the time
as Governor of the Bank of Canada. The second was the personal
aspects of the job or the personal aspects that would be associated
with the move. I have a young family and the transition of countries
and schools here and then back was in the end decisive. It was
a finely balanced decision, as I think I outlined in my written
response, given the immense challenges that are associated with
this opportunity.[9]
9. Dr Carney told us that his mind was changed
for two reasons:
What changed was that, subsequent to that decision,
the Chancellor suggested to me that the position could be for
a period of five years. That was the first point. Secondly, I
was informed that Charlie Bean, Deputy Governor for Monetary Policy,
had agreed that he would extend his term for an additional year
from the time of the selection of the new Governor.[10]
Dr Carney added that this conversation with the Chancellor
took place at the Mexico G20 on 4 or 5 November 2012.[11]
Dr Carney had by that time been aware for about three weeks that
a process had been devised by Sir Nicholas Macpherson for sitting
governors of central banks. He had heard this in the period after
the deadline for applications had passed on 8 October.[12]
10. Following the Chancellor's announcement,
it emerged publicly that special arrangements had been made for
Dr Carney to apply for the job. Sir Nicholas Macpherson told us
in writing that:
I decided that a special process was necessary for
serving Governors. It became clear that it was impossible for
a serving Governor to apply to the timeframe and thus open their
own position to uncertainty for two months (on professional, political
and economic grounds).
Therefore I devised a process whereby serving Governors
could apply at the same time as being interviewed, to limit the
risk of potentially destabilising speculation. Since no other
serving Governor expressed an interest in the job, this special
process only applied to Dr Carney.[13]
In response to a further letter from the Committee
Chairman, Sir Nicholas gave more details:
I was in contact with Dr Carney from February 2012
onwards, as I was with a number of other potential candidates.
No other central bank governor expressed an interest in the job,
following the advertisement, and so this part of the process was
designed with Dr Carney in mind. And given the lack of interest
from other governors, I did not see any merit in publicising it.
The process was exceptional, reflecting the importance and sensitivity
of the appointment. Although I would not want to rule it out for
the future, I would expect such a process to be necessary only
in exceptional circumstances.[14]
Dr Carney told us that the interview took place around
17 November, on a Sunday.[15]
Term of office
11. Until the passage of the Financial Services
Act 2012, the Governor of the Bank of England was able to serve
two five year terms. Following a recommendation from this Committee,
the Government agreed that in future the Governor of the Bank
of England should serve for a single, non-renewable, eight-year
term, and this is now in statute as a result of the Financial
Services Act 2012. However the Chancellor told the House when
announcing the appointment that Dr Carney had indicated that he
wished to serve as Governor for five years. This, the Chancellor
said, would "align with the timing of his role at the [Financial
Stability Board], and reflects the fact that by then he will have
served for 10 years as a central bank governor".[16]
Dr Carney himself told us of several reasons for his preference
for a five year term:
The role comes during a unique period in the Bank's
illustrious history as it takes on new responsibilities. The next
five years will span a period that will be critical for the future
development of the Bank of England itself, for the development
of the British, European and global economies, as well as decisive
for domestic and international financial reform.
My tenure will oversee a significant transition at
the Bank. To be most effective, transitions need to be sharp,
sustained and finite. A five-year term is the right managerial
timeline to relaunch the Bank of England with its broader responsibilities,
and to develop considerable talent, undertake targeted external
recruitment, and build a succession plan. Over the five years,
we can establish the full potential of the new institutional structure,
which combines monetary policy, macroprudential and microprudential
regulation. I can also give life to the crucial governance reforms
promoted by the Treasury Committee and incorporated in the Financial
Services Act.
As an outsider I can—for a period—bring
different experiences and perspectives to help catalyse the necessary
changes within the Bank to achieve these goals, and I look forward
to working with employees of the Bank, the Court, the Government
and the Treasury Committee to ensure that the full potential of
all of these reforms is realised.
The next five years will also be a decisive period
for domestic financial reform. By 2018, the ring-fencing of core
banking activities recommended by the ICB should be well on the
way to completion and, following agreement of the European Recovery
and Resolution Directive, the UK's Special Resolution Regime will
have been developed to allow bail-in of banks' unsecured creditors.
We will have done much to solve the problem of banks that are
too big to fail.
Over the next five years, the Bank has the ability
to extend and broaden its position as a global leader (intellectually
and effectively) amongst central banks. The next five years will
be the decisive period for international financial reform after
the crisis. By 2018, all elements of the Basel III reforms will
be agreed and implemented, with capital requirements and the Liquidity
Coverage Ratio supplemented with the Net Stable Funding Ratio
and a common leverage ratio. A wide range of reforms to OTC derivatives
trading will also have been introduced, including capital and
margining requirements, measures to impose mandatory exchange
trading and centralised clearing of standardised derivatives,
and new transparency requirements. In addition, the framework
that is being constructed for systemic institutions will have
been extended to global insurers and key shadow banks.
Importantly, a five-year term corresponds with my
maximum possible term as FSB Chair (terms are 3 years once renewable).
Simultaneously serving in both roles will maximise intellectual,
managerial and work process synergies at the Bank of England during
the critical period for reform.
Finally, from a personal perspective, there are two
considerations. First, at the end of a five year term, I will
have served as a Governor of a G7 Governor central bank for over
a decade. In my experience, there are limits to these highly rewarding
but ultimately punishing jobs. Second, the five year term has
advantages given the ages of my children and the disruption that
is involved in moving schools and countries.[17]
In oral evidence, he gave the impression that personal
reasons were highly significant:
[...] for me, given the ages of my children, it makes
a material difference to come here and then return to Canada.
I will be more specific. My eldest daughter will just finish high
school over the course of five years. The second-eldest daughter
will have two years in which to reintegrate into a French school
system in the Canadian school system, which is what she would
do.[18]
Parliamentary scrutiny of the
appointment of the new Governor
12. In our Report of 2011 into the Accountability
of the Bank of England we recommended that, in order to safeguard
the independence of the Governor, the Treasury Committee be given
"a statutory power of veto over the appointment and dismissal
of the Governor of the Bank of England," similar to the power
given to the Treasury Committee over the appointment of the Chair
of the Office for Budget Responsibility.[19]
In its response to our Report, the Government argued against our
recommendation:
The Government believes the independence of the Governor
of the Bank of England is vital, and is confident that this independence
is safeguarded via existing mechanisms, such as his appointment
by the Queen. The Bank of England and the Office for Budget Responsibility
perform materially different roles. The Bank of England undertakes
policy actions that directly affect markets and, as such, appointments
to the Bank's executive or policy committees are market sensitive.
This market sensitivity makes these roles unsuitable for pre-appointment
vetting. The Government hopes that the TSC will continue to hold
pre-commencement hearings for the members of the Bank's policy
committees, which include the Governor and Deputy Governors.[20]
13. When the Chancellor announced the appointment,
he told the House that Dr Carney wished to appear before the Treasury
Committee before taking up his appointment, and that Dr Carney
would not otherwise be commenting at length on British economic
policy until he took up his post.[21]
The Committee announced later that day that it would hold what
would amount to a pre-appointment hearing with Dr Carney and report
its conclusions to the whole House. If necessary, the Committee
said that it would request that its recommendations be debated
on the floor of the House.
Our evidence session with Dr Carney
14. Our meeting on 7 February 2013 gave Dr Carney
time to answer a detailed questionnaire in advance covering his
views on a wide range of topics relevant to his role as Governor.
This, along with the CV that he also provided, was the basis for
much of our questioning. The publication of the questionnaire,
and the public oral evidence, have allowed the general public,
policy makers and those with a professional interest to have a
clear idea of Dr Carney's views and approach in advance of his
taking up his role.
15. The incoming Governor made
clear that he would speak to the Treasury Committee before making
other statements. The detailed examination of his views in this
hearing, and the wider public scrutiny that comes with it, should
assist the Governor's efforts to explain his approach to the public.
We will follow a similar pre-appointment process for the appointment
of subsequent Governors, and maintain our scrutiny once he has
take up his appointment.
16. We are most grateful to Dr Carney for travelling
to London specially for his meeting with the Committee, and for
providing full and helpful answers—both in writing and in
person—to the Committee's questions.
Criteria for appointment
17. When considering appointees for the Monetary
Policy Committee, we judge them against criteria of professional
competence and personal independence. The Governor's role is much
wider than that of an MPC member, so we questioned Dr Carney on
a range of subjects in order to reach a judgement in addition
as to his skills and experience, leadership qualities and views
on the governance and accountability of the Bank of England.
18. Following the meeting with
Dr Carney, the Committee issued a press release confirming his
appointment. We conclude that he has the necessary professional
skills, qualities and experience, and personal independence, to
be Governor of the Bank of England.
19. The Committee wishes Dr Carney every success
for his term as Governor, and looks forward to our future meetings
with him, including the regular evidence sessions we hold with
the Monetary Policy Committee and the Financial Policy Committee.
20. Dr Carney's views on the UK's future monetary
policy framework could be of great significance. Since we heard
evidence from him, however, the Chancellor has announced in the
Budget changes to the remit of the Monetary Policy Committee.
The Government discussed the new remit with the present Governor
and Dr Carney, and it has their agreement, but the content of
those discussions has not been made public.[22]
These changes have formed part of our inquiry into the Budget
and we will report our conclusions, based in part on Dr Carney's
evidence, in that Report.
1 The Economist, September 15 2012, page 19 Back
2
Treasury Committee, Twelfth Report of Session 2006-07, The Monetary
Policy Committee of the Bank of England: ten years on, para 84 Back
3
Treasury Committee, Seventeenth Report of Session 2007-08, Banking
Reform, Ev 38 Back
4
Cabinet Office, Role profile, Governor of the Bank of England Back
5
HC Deb, 26 November 2012, col 21; Letter from Sir Nicholas Macpherson
to Chairman of the Treasury Committee, 9 January 2013 Back
6
Letter from Sir Nicholas Macpherson to Chairman of the Treasury
Committee, 9 January 2013 Back
7
HC Deb, 26 November 2012, col 21 Back
8
http://news.bbc.co.uk/1/hi/programmes/hardtalk/9743619.stm Back
9
Q 1 Back
10
Q 2 Back
11
Q 3 Back
12
Qq 5-7 Back
13
Letter from Sir Nicholas Macpherson to Chairman of the Treasury
Committee, 9 January 2013 Back
14
Letter from Sir Nicholas Macpherson to Chairman of the Treasury
Committee, 31 January 2013 Back
15
Q 8. 18 November 2012 was a Sunday. Back
16
HC Deb, 26 November 2012, col 22 Back
17
Ev 32 Back
18
Q 2 Back
19
Treasury Committee, Twenty-first Report of Session 2010-12,
Accountability of the Bank of England, HC 874, para 148 Back
20
HM Treasury, A new approach to financial regulation: securing
stability, protecting consumers, January 2012, Cm 8268, para B.30 Back
21
HC Deb, 26 November 2012, col 22 Back
22
HM Treasury, Review of the monetary policy framework, March
2013, p5 Back
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