Sending shockwaves throughout the currency markets, UK Chancellor of the Exchequer George Osborne announced Bank of Canada Governor Mark Carney as the new Bank of England Governor. With plenty of time and qualified candidates competing for the role, the announcement has many asking – why Mark Carney?
Simply put, former BOC Governor Mark Carney is a banker by heart. Previously working for Goldman Sachs in his early years, Carney has the background that will allow him to effectively govern UK monetary policy. This is in stark contrast to outgoing Governor Mervyn King, who was by trade an economist. Although the sentiment is somewhat counterintuitive, it is a growing trend among central banks to hire former financial services professionals in a practice-versus-theory approach. Most recently, the European Central Bank has employed this measure.
With former ECB President Jean Claude Trichet leaving the monetary body, Mario Draghi was appointed to lead the charge. Draghi, himself, was also a former managing director at Goldman Sachs investment bank, while Trichet was more of a politician than economist. The real world approach and financial sector acumen accumulated through the years should allow Carney to assume a more respected role in the UK financial system, allowing a more unified approach to monetary policy.
And, Carney’s previous experience on different global boards will do nothing but add to his newly assumed roles as head financial regulator and risk assessor. With the dissolution of the FSA, Carney will assume a broader role in both regulating financial institutions through the Prudential Regulation Authority (ie investment banks and insurers) as well as gauging UK financial systemic risk by serving on the Financial Policy Committee. Mr. Carney remains more than qualified given his tenure at global organizations like the Financial Stability Board and on the board of directors for the Bank of International Settlements. Both entities work in similar fashion to the UK’s PRA and FPC, but on a larger scale.
So, even as many on the Street and the City wonder about the decision, it’s pretty clear to see why the newly elected governor was chosen for the top UK monetary spot. The only question now is in what direction is policy going to go.