Mark Carney's last stand at the Bank of England
When he agreed in 2012 to cross the Atlantic and swap the governorship of the Bank of Canada for that of the Bank of England, Mark Carney declared he was “going to where the challenges are greatest.”
More than seven years later, as he prepares to leave office, a somewhat wiser and certainly grayer-haired Carney acknowledges with a smile that “the challenges were even greater maybe than I realized at the time.”
None more so than in the early hours of June 24, 2016, after Britons defied the odds by voting to leave the European Union.
Arriving in his London office around 3:30 a.m. with the pound already plunging, Carney tracked results and watched markets before speaking to then-Chancellor of the Exchequer George Osborne, the lawmaker who had pulled off the coup of hiring him and who would soon be cast from government.
At 8:45 a.m. or so, shortly after the prime minister resigned, Carney paced down the gilt-edged corridor outside his office to deliver a presidential-style televised address to the nation.
“We are well prepared for this,” he said.
Prepared maybe for managing the market and economic fallout from the Brexit vote as he fought to avoid a recession. Perhaps not, however, for the political opprobrium that would be directed his way in the subsequent years—even as he agreed three times to extend his term to oversee the U.K.’s departure from the bloc and smooth the path to his successor.
A scorecard for Carney’s Brexit-dominated tenure would award him credit for supporting economic growth, strengthening the financial system, and focusing attention on modern challenges such as digital currencies and climate change. His demerits: communications missteps on interest rates, exposing the bank to political fire, and failing to keep women in top positions.
This story is based on interviews with people who worked with or encountered the governor during his tumultuous years running the BOE. Some individuals spoke on condition they would not be identified so that they could talk more frankly.
Initially brought in to strengthen Britain’s financial system, Carney ended up doing that and more as the possibility of a no-deal Brexit became, in his words, “uncomfortably high.” Two months after his post-referendum reassurances, the BOE cut rates to a new record low and restarted bond purchases. It even looked through an inflation spike driven by a slumping pound to keep monetary policy exceptionally loose.
The measures were dramatic, and may have gone further than necessary, but they showed Carney’s determination to prevent a downturn. The U.K. economy stayed out of a recession, and inflation during his tenure has averaged 1.6 oer cent, not far from the two per cent target.
His insistence that banks increase their buffers against financial risk came into focus when lawmakers asked the BOE to provide worst-case economic scenarios for Brexit. Stress tests to measure banks’ resilience showed they’d be strong enough to continue lending even if a disorderly departure were to provoke a crisis.
“Financial crises or banking crises are conventional risks,” Carney told Bloomberg Television in an interview. “Issues around a cliff-edge Brexit—those are different.”
His mission to protect the U.K.’s financial system went further. Financial services account for about 7% of the British economy, so the way they’ll be regulated after Brexit is critical. Carney was a defender of the City of London—calling it Europe’s “investment banker”—and even warned the EU that it was in its interest to have a comprehensive deal.
The first foreigner to run the BOE in its three-century history, the governor began in 2013 with a status rarely associated with central bankers. Osborne, who hired him after an extended courtship, described the former Goldman Sachs Group Inc. banker as the most qualified person in the world for the job. The government was so keen on him, it agreed to shorten his term to five years from the statutory eight.
Carney, then 48, brought a flashier style than his academic predecessor, Mervyn King. A regular at the World Economic Forum in Davos, he was well known in central-banking circles as chairman of the Financial Stability Board, which coordinates international regulation of the financial system. There, he succeeded in implementing most reforms proposed in the wake of the financial crisis, including making banks more resilient, ending the problem of too big to fail, and making derivatives markets safer.
“He’s been a real star” as chair of the FSB, said Charlie Bean, who served a year under Carney as deputy governor. “There was a window of about five years before people forgot about the consequences of the crisis, so it was very important to drive that regulatory agenda forward.”
He was also paid like a star at the BOE—480,000 pounds ($625,000) plus an annual 250,000-pound housing allowance. That exceeded the combined earnings of his counterparts at the Federal Reserve and European Central Bank, and made headlines when many Britons couldn’t afford a home.
He became a U.K. celebrity as soon as he arrived. Newspapers featured photos of him at a music festival wearing glittery face paint. He dropped pop culture references such as the names of musicians into speeches with ease. Lawmakers on Parliament’s Treasury Committee, which Carney was obliged to attend for hours of questioning, joked he should have arrived to the tune of 1980’s pop song “Smooth Operator.”
Inside the BOE, an austere institution where doormen still wear pink tailcoats and top hats, it was clear something radical was happening too.
At meetings of the Monetary Policy Committee, Carney changed his name card from “Mr. Governor” to “Mark Carney.” The guidance to staff was “call me Mark,” though that took time to catch on. He was a much more visible presence than King. Meetings ran on time, and so did he. He completed the 2015 London marathon in 3 1/2 hours.
“Some things became a little bit more informal,” said Ian McCafferty, who sat on the MPC in the first five years of Carney’s reign. “If I needed to talk to Mark, I’d pop down and go and see him in his office. If I wanted to see Mervyn I’d do the same, but it would be a little more formal, it would be ‘good afternoon Mr. Governor,’ rather than ‘Hi Mark.’”
While businesslike, he could be unforgiving. Carney sometimes interrupted staff during presentations, and demanded they try again later when better prepared. In contrast to his easy-going persona in public, they got to know his temper too. Being on the receiving end of sudden flashes of fury became known as “getting tasered.”
His wit could be pointed, even in public. When London-based Citigroup Inc. economist Michael Saunders asked a question during a regional speech in August 2013, Carney jokingly shot back, “Have you moved up here, Michael? First time in Nottingham?” Saunders would later join him as a policy maker.
Before long, the governor was spearheading a revolution at the central bank. After less than a year, he unveiled a McKinsey-designed shakeup aimed at modernizing a bureaucratic, hierarchical behemoth. A slogan emerged on computer screensavers throughout the BOE: “One Bank.”
The frenzy of change eventually reached every corner of the institution. A modernization of the library raised some hackles. Most symbolically, the traditional cricket match at the bank’s annual sports day was scrapped.
One major reform reorganized the way officials took monetary policy decisions, opting for fewer meetings, an immediate release of minutes and a more focused summary.
“That has worked well, in terms of presenting the material,” said Martin Weale, who was a policy maker on the MPC between 2010 and 2016. “I was against it at the time, but I’ve changed my mind.”
Some reforms were already in motion before Carney’s arrival, with the abolition of the U.K.’s regulator, the Financial Services Authority. A new regime partly run by the BOE replaced it, with three decision-making bodies governing regulation, financial stability and conduct. The governor had to tame and supervise major banks, a daunting task that many credit him with accomplishing successfully.
“The sort of political interference with financial regulation that was happening with the FSA won’t happen again while the Bank of England is in charge,” Weale said. “That’s a very important moment, getting that into what looks like a robust state. It's an important contribution.”
Carney himself took time to adjust from the Canadian system, where the governor is ultimately responsible for monetary decisions. At the BOE, every policy maker has an independent vote. It was a shift he may never have fully got used to, according to former officials. The central bank declined to comment on this or other parts of this story when contacted by Bloomberg.
That struggle to accommodate the collegiate design of the MPC was a frustration to some members, most notably after the U.K.’s vote to leave the EU in June 2016. A week later, while claiming he wasn’t “pre-judging” the views of his colleagues, he effectively pre-announced a loosening of monetary policy before it had been formally discussed.
When Carney began in July 2013, interest rates were already at a record low of 0.5 per cent, the economy had just emerged from its first double-dip recession since the 1970s (revised away just before his arrival), and Britain’s 65 million people were in the grip of fiscal austerity.
Early on, the new governor insisted on adopting the signature policy tool he honed in Canada, known as forward guidance. This took the form of a pledge not to raise the rate at least until unemployment dropped to seven per cent, a message intended to provide certainty to the economy that monetary conditions would remain loose as long as needed.
That soon went awry. The policy, intended to last for years, was abandoned in mere months as the jobless rate swiftly fell. Carney was forced to quickly replace it with a more opaque commitment that hinged on the amount of slack in the economy.
“Forward guidance wasn’t the most successful thing the MPC ever did,” said David Miles, a policy maker for the first two years of Carney’s term, who teaches at Imperial College London. “We didn’t get that right.”
Still, the push for transparency about the outlook stuck, as officials became more likely to share views about the future path of policy.
While the increased openness of his first years attracted praise, there were missteps. Markets were repeatedly whipsawed by shifting communications. One episode in 2014, where Carney was forced to temper an earlier signal on a possible interest-rate increase, led lawmaker Pat McFadden to describe his mixed message to investors as worthy of an “unreliable boyfriend,” a description that stuck.
“There’s been various times when Mark and other committee members have given what I thought was a bit of a hostage to fortune,” said Bean. “Members would be wise to say less about how they expect to vote and just confine their remarks to their analysis.”
Carney clearly liked having his way. Nicky Morgan, who chaired Parliament’s Treasury Committee between 2017 and 2019, says lawmakers questioning him and his colleagues used to have a little game.
“He spoke a lot,” she said. MPs would “keep careful note of at what point anybody else on the panel was allowed to speak. It was quite a long way into some of the sessions before anybody else said much.”
Policy makers tended to follow Carney’s lead in monetary decisions. Unlike King, who was outvoted repeatedly, he was never in the minority. In 66 meetings, he faced just 45 votes against him out of a total 525. The governor’s assertive personality may have shut down dissent, according to one former employee.
While quibbles over communication became a recurrent theme, they seem almost quaint compared with the subsequent battles over Brexit.
Carney tried at first to keep the bank out of the political debate, but he succumbed before the 2016 referendum, declaring that leaving the EU could mean a recession. There was also some controversy before the Scottish independence vote in 2014, though the backlash on Brexit was particularly vicious. Euroskeptic politicians labeled Carney as being part of “project fear,” a catch-all phrase used to discredit those warning of possible repercussions from a vote to leave.
“You don’t take on the role of governor unless you’re prepared to tackle controversial issues,” McCafferty said. “Had he done what a lot of people have said, which is just to keep out of it, I think he would have been in derogation of his duty.”
The governor’s appearances at Treasury Committee hearings—often quite tame affairs focusing on how the bank is fulfilling its remit—became increasingly tense.
Conservative lawmaker Jacob Rees-Mogg for a time became Carney’s chief tormentor. He called for the governor to be fired, accusing him of adopting the same “propaganda” as the Treasury, which had published analysis before the Brexit vote that many saw as overly pessimistic.
Another Conservative lawmaker, Steve Baker, asked if Carney was being influenced by Goldman Sachs, which supported the Remain side of the campaign—and where he worked for 13 years. The governor responded, disbelievingly, “wow.”
While some accused Carney of putting the BOE’s independence at risk, he insists his interjections were justified.
“Look, it was a very political time,” Carney told Bloomberg Television. “When you’re in a situation where you have to take action, whether it’s to shore up a bank in a financial crisis or prepare the system for a cliff-edge Brexit—to not do that is to make a political decision.”
For all the bruising, lawmakers found Carney to be a skilled performer, well able to handle whatever was thrown at him. The BOE came in for particular opprobrium over its downbeat economic forecasts, especially in the immediate aftermath of the referendum when it dramatically slashed its growth predictions. The governor argued that expectations for slower growth, a weaker pound and higher inflation largely turned out to be accurate.
“He’s an accomplished politician as well as a central banker, so he knew exactly how to navigate the difficult politics,” said Wes Streeting, a Labour lawmaker who sat on the Treasury Committee before and after the Brexit vote. “Trying to skewer him when the committee felt that he needed skewering was always really difficult.”
While Britain’s protracted exit from the EU dominated his tenure, that didn’t stop Carney pursuing passion projects such as exploring financial risks from climate change, or proposing an overhaul of the entire global monetary system with his synthetic hegemonic currency. His green efforts were initially scoffed at for being outside his remit; now, the topic is so fashionable for central banks that he seems visionary.
Other initiatives were less successful. While he bemoaned the lack of diversity in the bank’s leadership and introduced targets, the bank looks set to fall short of its aim to have 35% female representation in senior management by the end of this year. It’s even further behind on its ethnic diversity goal for high-level positions.
There’s now just one woman on the rate-setting panel. While those positions are appointed by the government, it’s still the case that many senior women at the bank have left during Carney’s tenure.
Carney leaves the bank on March 15, the eve of his 55th birthday. His successor, Andrew Bailey, is head of the U.K.’s financial regulator. In an unexpected turn of events, it’s currently investigating two issues related to the BOE: a spike in the pound just before the BOE’s rate decision in January, and a high-speed audio feed of press conferences that could have given some traders an unfair advantage.
Carney's already taken up a role as a United Nations envoy, and will advise Prime Minister Boris Johnson on climate issues before the U.K.’s COP26 conference on the matter.
After that, he’ll return to Canada, where there’s long been speculation that he could one day lead the Liberal Party there, though that job is currently held by Prime Minister Justin Trudeau. They recently lunched in Ottawa together.
Bailey, meanwhile, inherits an institution that has endured a whirlwind of both change and controversy. He is a former BOE official whose career has often been far from the limelight. That will no longer be the case once Carney has gone.
“His legacy probably is that more people know who the governor of the Bank of England is,” said Morgan. “He was a steady pair of hands at a difficult time in the country’s history.”
--With assistance from Lucy Meakin, Jennifer Ryan, Alex Morales, Jess Shankleman and David Goodman.