Skip to Content

The New Bank of England

When Mark Carney talks of relaunching the Old Lady, this is no mere figure of speech.



A well-informed correspondent, who did not want to be identified, predicts a full “spring clean”:

“ I’m inclined to think Carney’s denial of interest (in becoming Governor) was genuine rather than a negotiation tactic like Napoleon’s thrice refusal of the title of emperor.  However the denial of interest may have been based on foreseen difficulties managing policy without his having sufficient power, and a way of acquiring these powers. He’s extremely politically smart. One change that may well occur will be a severe housecleaning at the BOE. When Carney came to office at the BOC, virtually every member of the governing council either retired  – early in some cases – or left to pursue “other opportunities”. Within quite a short time, Paul Jenkins, Pierre Duguay, Sheryl Kennedy, Jack Selody, David Longworth, all career central bankers, had gone. Many department chiefs were subsequently forced out.”

Hm. Of course, this is a classic tactic of new leaders of big aggressive corporations, particularly investment banks such as Goldman. Will it be the turn of the Old Lady to suffer such indignities?

But then MC will come up against the politics of the monetary policy committee, where the governor has only one vote. But, my correspondent continues, watch out:

“You will know better than I, how much leeway he has to execute this housecleaning but be mindful, he likely received assurance from Osborne that no one in the government would stand in his way in making changes he sees fit.”

Get on your marks! A tactic MC likes to employ is to have many important discussions in a casual but challenging environment:

“He’s an avid runner and if people seek him out for a discussion, he often invites them to discuss the matter during a brisk run. I hope all the members of the MPC have good sturdy trainers!”

Expect MC to reshape the institution and how policy is conducted.

It will be a challenge to analyse Bank tactics, and to be mindful not to filter the analysis through what the Bank has done in the past. This is the New Bank of England.

“By the way I actually just saw a quote from a former BOE person (name escapes me) that the Bank will not do more easing in the foreseeable future because there is not much further they can do – as if the BOE has just given up. That is Old Bank thinking for sure.”

On monetary policy, MC will do what he deems necessary. If come mid 2013 that means more QE that is what he will do. He’s not going to simply give up. 

He will use whatever macro-prudential tools that are available not just to restrain the next boom – “leaning against the wind”, whenever that may happen – but to kickstart demand.

Note that MC pioneered the communications/interest rate-commitment experiment in monetary policy; See press release 21 April 2009: “Bank of Canada lowers overnight rate target by 1/4 percentage point to 1/4 per cent and, conditional on the inflation outlook, commits to hold current policy rate until the end of the second quarter of 2010”. (Though he did not stick it out for the entire commitment period). The San Fransisco Fed did an analysis of the rate commitment and while finding it an effective form of unconventional policy, did raise some serious questions about it. Then Bernanke adopted it anyway (see here).

Might Carney be the person to get us out of “The Money Trap”, after all?

There I go again.  Dream on.