Britian's new banker

HELLO ALL, 

This post will be a fairly brief one as I am currently quite busy organising graduation stuff such as clothes and shoes (being a girl and all..), but I promise a more in-depth analysis on the next topic is coming very soon!

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So if you're living in Britain, and if you read any news online or newspaper, it will be impossible to miss that Britain and it's central bank is about to experience a significant change-over. After 10 years of holding the position as Governor of the Bank of England, Sir Mervyn King (now Lord King) will step down and Canadian Mark Carney, currently the Governor of the Bank of Canada, will officially replace Lord King as of next Monday. 

Carney's total annual benefits package, including salary, housing allowance and pension contribution is at a very generous £874,000, more than that of Meryvn King. This more than generous figure reflects George Osborne's efforts to woo a once reluctant Carney from Ottawa to London, and also that Carney may just be worth it. After all, no one get's called a "financial rock star" or the "George Clooney of central banking" for no reason. 

And I for one, believe that Carney can bring fresh thinking and perspectives at the Bank of England. This in turn, can lead Britain on to a stronger and long lasting path of growth and employment. For example: 

Carney was the governor of the Bank of Canada throughout the financial crisis. Canada, unlike most other industrialised nations and G7 countries, was weakly affected by the 2007-9 episodes in comparison. Its banks also did not need to seek government bail-outs. Carney has been described as "effective" and "helpful" during this period and his clear record of success, which not many central bankers can claim, is certainly reassuring to Britain - we can look forward to a replication of such success over the next 5 years. 

And given that Canadian banks are relatively conservative, risk-averse (only 5% of Canadian mortgages were sub-prime) and more willing to lend especially during the crisis due to a better managed banking system comparatively to US and UK counterparts (which is another reason Canada remained generally unaffected), Carney is also likely bring this conservative ethos or even related reforms into Britain's banking system. Carney's past as a banker (of Goldman Sachs) can help him to leverage any policies related to reigning in banks to banks' management - he effectively understands how such policies could be at a huge cost to banks' profit and capital structures, inevitability affecting contribution to national GDP. At the same time as a central banker, he can engage in a viewpoint for the good of the general economy. 

Further, there is some heavy hinting that Carney will adjust QE packages to revert to the 2% target inflation in order to achieve GDP growth. Could we finally see a interest rate increase? I believe so, but not immediately. Radical changes is likely to attract opposition from Carney's colleagues of the Bank. 

So while monetary policy, fiscal policy or other structural banking system changes won't be immediate, he has already brought in 'new thinking'  and a new tone of communication by appointing key staff. Those among several include a female banker - Charlotte Hogg - for COO and Jeremy Harrison, Carney's current press spokesperson from the Bank of Canada. 

And of course, Carney's new job is no easy job as he himself has recognised. I can think of a handful of challenges and big 'to do' things on his list:

• Monetary policy - more QE with the £375 billion available? Or raise interest rate? Or both?
• Supporting a path of higher and longer lasting GDP growth. How to effectively do so?
• What to do about a ~2.7% inflation rate, or a ~7.8% unemployment rate? 
• How to reform the banking system, beyond incoming regulatory changes such as Basel III or Dodd-Frank?
• Assessing effectiveness and managing the newly formed PRA.
• Undoubtedly playing a role in the near-future privatisation of RBS and LBG.
• How to reform the Bank of England itself? Only 35%-40% of British households are satisfied with their central bank at present. 

Obama was hailed very much as the 'messiah' of political change probably after the Bush years were so dark and also for being the first black president. Carney has certainly been portrayed as a face of change, but to a much less extent than Obama. The next 5 years under Carney will be different and possibly exciting. How different it will be and whether Carney will really deliver remains to be seen. I don't expect radical changes over the next few months but his style will bring in a new culture at the Bank of England to start with. We can only look forward to the August MPC meeting - the first under Carney - and also Carney's first quarterly inflation report. 

The 2Cs that lie ahead for Mark Carney 

JH