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Appointment of Dr Mark Carney As Governor of the Bank of England

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Appointment of Dr Mark Carney As Governor of the Bank of England House of Commons Treasury Committee Appointment of Dr Mark Carney as Governor of the Bank of England Eighth Report of Session 2012–13 Report, together with formal minutes, oral and written evidence Ordered by the House of Commons to be printed 27 March 2013 pursuant to Standing Order No. 137 HC 944 Published on 19 April 2013 by authority of the House of Commons London: The Stationery Office Limited £14.50 The Treasury Committee The Treasury Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of HM Treasury, HM Revenue and Customs and associated public bodies. Current membership Mr Andrew Tyrie MP (Conservative, Chichester) (Chairman) Mark Garnier MP (Conservative, Wyre Forest) Stewart Hosie MP (Scottish National Party, Dundee East) Andrea Leadsom MP (Conservative, South Northamptonshire) Mr Andy Love MP (Labour, Edmonton) John Mann MP (Labour, Bassetlaw) Mr Pat McFadden MP (Labour, Wolverhampton South West) Mr George Mudie MP (Labour, Leeds East) Mr Brooks Newmark MP (Conservative, Braintree) Jesse Norman MP (Conservative, Hereford and South Herefordshire) Teresa Pearce MP (Labour, Erith and Thamesmead) David Ruffley MP, (Conservative, Bury St Edmunds) John Thurso MP (Liberal Democrat, Caithness, Sutherland, and Easter Ross) Powers The Committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the Internet via www.parliament.uk. Publication The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the Internet at www.parliament.uk/treascom. The Reports of the Committee, the formal minutes relating to that report, oral evidence taken and some or all written evidence are available in printed volume(s). Additional written evidence may be published on the internet only. Committee staff The current staff of the Committee are Chris Stanton (Clerk), Lydia Menzies (Second Clerk), Jay Sheth and Adam Wales (Senior Economists), Hansen Lu, Matthew Manning (on secondment from the FSA) and Duncan Richmond (on secondment from the NAO) (Committee Specialists), Steven Price (Senior Committee Assistant), Jo Cunningham and Lisa Stead (Committee Assistants) and James Abbott (Media Officer). Contacts All correspondence should be addressed to the Clerk of the Treasury Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 5769; the Committee’s email address is [email protected] Appointment of Dr Mark Carney as Governor of the Bank of England 1 Contents Report Page 1 Introduction 2 The role of the Governor of the Bank of England 2 The process of appointment of the Governor 2 Special arrangements for Dr Carney 4 Term of office 6 Parliamentary scrutiny of the appointment of the new Governor 7 Our evidence session with Dr Carney 8 Criteria for appointment 8 2 Accountability and leadership style 10 Accountability of the Bank of England 10 Openness 10 Leadership style 11 3 Financial Stability and regulation 14 Introduction 14 Capital adequacy of UK banks 14 Leverage ratios 15 Liquidity 16 Recovery and resolution 18 Volcker alongside Vickers 19 Competition 19 Conclusions 23 Recommendation 24 Formal Minutes 23 Witnesses 26 List of printed written evidence 26 List of Reports from the Committee during the current Parliament 27 2 Appointment of Dr Mark Carney as Governor of the Bank of England 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 1 The Economist, September 15 2012, page 19 2 Treasury Committee, Twelfth Report of Session 2006–07, The Monetary Policy Committee of the Bank of England: ten years on, para 84 Appointment of Dr Mark Carney as Governor of the Bank of England 3 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. 3 Treasury Committee, Seventeenth Report of Session 2007–08, Banking Reform, Ev 38 4 Appointment of Dr Mark Carney as Governor of the Bank of England 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.
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