THE RECENT TRAVAILS of Banco Espirito Santo serve to remind us that the banking world is not (yet) a cleansed and sterilised construct, managed by a new generation of technocrats who aspire to nothing more than to leap over regulatory hurdles – while, at the same time, increasing lending to all at no risk and (thanks to tighter capital requirements) practically no margin.
In other words, we have not reached a brave new world of banking. But that is not for the want of people groping towards it.
One place where that seems to be happening, is one where you would least expect awkward fumblings and unseemly ructions: the Bank of England.
The bank, known affectionately as the Old Lady of Threadneedle Street (or simply the Old Lady), was established 320 years ago in July of 1694. However, it was not until 1946 that the Bank was nationalised, formally withdrew from commercial business and became nothing other than a central bank.
THE BANK HAD turbulent times when faced with the secondary banking crisis in the mid-1970s and again in the aftermath of the failure of BCCI in 1991. But apart from that it did a pretty good job as regulator, guardian of financial stability, funding vehicle for the Treasury and lender of last resort.
That was, of course, until independence in 1997 after which the Bank was split three ways, with regulation going to the newly founded FSA and funding to the UK DMO. It is doubtful that any of this had an influence on the latest banking crisis, not least because countries that had nothing to do with the Bank’s reorganisation found themselves and their respective financial systems in trouble just as deep and, in many cases, much deeper than that experienced in the United Kingdom.
When the Governor, Sir Mervyn King, came to the end of his tenure, a new head was needed. The betting was on Paul Tucker, Deputy Governor responsible for financial stability and a career-long staffer. But in an action more redolent of football, the Chancellor of the Exchequer appointed Mark Carney of the Bank of Canada. Thus I added the sobriquet “The Magician” for it appeared as though the government expected him to pull rabbits out of hats that existing and experienced Bank people could not.
One City notable asked me last week whether I had noticed that when Carney was on TV he sported a disarmingly warm smile but noted that one should not be distracted by that and should focus on the steeliness in his eyes. Perhaps the personage in question had overlooked the fact that he was a Goldman Sachs alumnus of 15 years’ standing. How else could he have made it to Deputy Governor of the Bank of Canada at 38?
When passed over for the top job, and not entirely surprisingly, Tucker packed up and left. Charlie Bean, former chief economist at the Bank and latterly Deputy Governor and head of monetary policy then retired and, in a shock move more recently, Spencer Dale, another former chief economist, also packed his bags and departed the Bank. To totally misquote Lady Bracknell: “To lose two senior officials, Mr Carney, may be regarded as a misfortune; to lose three looks like carelessness.”
“To lose two senior officials, Mr Carney, may be regarded as a misfortune; to lose three looks like carelessness”
THE BANK WAS ripe for a spot of reform and Carney arrived with a new broom in hand, which he appeared to be prepared to use with gay abandon. However, the previously silent Old Lady who could move mountains by “raising an eyebrow” looks to have been reincarnated as a wittering Young Thing that talks a lot but says little.
The much-heralded forward guidance has become a Gordian Knot of utterances that most can now neither understand nor take seriously, while McKinsey has been brought in to review the Bank’s relationship and communication with “the market”. Carney – that former Goldman banker – is even trying to create a system for clawing back bonuses. Worst of all, though (and this is part of the forward guidance issue), Carney and the Bank got their forecasting of unemployment totally and embarrassingly wrong.
From being an austere institution that everyone in the City looked up to and feared, the Bank of England has become something of a figure of fun – one struggling to adapt to a world being remade by Dodd-Frank and MiFID, which few can clearly visualise. In contrast, both the US Federal Reserve and the ECB remain stoically stable. The last thing Fed Chair Yellen or ECB President Draghi want is to oversee the sort of wobbly platform that the Bank of England suddenly looks to be.
The departures from the Bank, especially that of Spencer Dale, at 47 still in mid-career, do not look pretty and one is led to wonder whether there is more unrest among the troops. There has always been leakage but these have usually been ambitious people without a discernible path to the top.
“Ex-Bank of England” is still a powerful door-opener when it comes to securing jobs in the private sector – Dale is going to BP as chief economist – but it has always been the scarcity that has secured the value. Let us hope that this is not another feature of the Bank that is about to change.
