The England Job: Bank on Tucker

Next June, Mervyn King’s hectic term as Governor of the Bank of England will come to an end. His successor will not have an easy job ahead of them, not least the need to rebuild ties with the City and to test new policy levers in preventing another credit boom. Many have called for an ‘outsider’ to replace King and to confront such challenges; but as of now, the race remains a closed shop.

Consider the process for appointing the Governor. While the process is said to involve ‘fair and free’ competition, the Treasury will draw up the final list of candidates and the buck will stop with the Chancellor. Given King’s blunt approach in office, which has alienated many in the City, Osborne is likely to pick a successor who is more constructive (and less academic). More generally however, it is unlikely that a clear outsider will gain favour due to the Treasury’s conservative influence in the selection process.

What type of candidate does that leave?

If Osborne wanted an outsider of sorts then he could look to the City. This would help to repair the Bank’s relations with the sector. Unfortunately, most experienced bankers are tainted by association to the financial crisis – or barring that – recent scandals. John Varley, the former Chairman of Barclays, was a leading contender before the Libor scandal unravelled. Stephen Green, a former chairman of HSBC and a current Tory minister, is now the City’s front runner, but his appointment would likely be seen as too political. In fact, a City appointee seems altogether unlikely given the Bank’s need to appear tough and credible on financial stability policy.

Alternatively, if Osborne were looking for a safe pair of hands then he could appoint an experienced policy official. Two leading candidates are Lord Turner, chairman of the Financial Services Authority (FSA), and Sir Gus O’Donnell, Warwick alumnus and former head of the civil service. Turner has impeccable leadership credentials, but he is seen as too outspoken towards the City. As for Gus, while he is a former Treasury man, he is perceived by senior Conservatives as being too cosy with the previous Labour regime.

That leaves candidates with experience at the Bank. Sir John Vickers, a former member of the MPC, has been touted for the job, but there isn’t much stomach for another academic as Governor. The leading candidate is Paul Tucker, the current Deputy Governor and the main man on financial stability. Tucker has 23 years of experience at the Old Lady, has strong connections with the City and is well regarded by his colleagues. His candidacy was almost derailed by the Libor scandal, but he performed well in a select committee and his chances have held up. If the tendency to promote from within is anything to go by, then Tucker is the clear favourite.

So what can we expect from the next Governor? Aside from a new communications strategy, it will be interesting to see how they deal with attempts at political interference. Trying to rein in a credit boom will mean less credit for first-time buyers and small businesses. Angry first-time buyers and small businesses make for angry voters: not a nice prospect for an incumbent Chancellor. The Governor’s test will be to preserve the Bank’s independence in the face of political pressure towards their new powers.