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Bank of England makes Nemat Shafik and Ben Broadbent deputy governors Mark Carney says Bank of England needs more power
(about 11 hours later)
Chancellor George Osborne has appointed a respected female economist as a Bank of England deputy governor, ending four years of an all-male interest-rate setting committee. Mark Carney said that a more powerful Bank of England was needed to prevent future financial crises and sought to distance himself from a "fatally flawed" central banking model brought in by Tony Blair's Labour government.
The appointment of Nemat Shafik, a deputy managing director of the International Monetary Fund, was one of three senior officials announced on Tuesday as part of a radical shakeup at the Bank under governor Mark Carney. Ben Broadbent, already on the monetary policy committee, will take over as a deputy governor from Charlie Bean when he retires this summer. City grandee Anthony Habgood becomes chairman of court at Threadneedle Street, managing the Bank's affairs other than monetary policy. The governor's vision for a more coherent Bank was unveiled , on the day chancellor George Osborne appointed a respected female economist as one of the Bank's deputy governors, ending four years of an all-male interest-rate-setting committee.
The appointment of Egyptian-born Shafik, who is also a British and US national, follows growing criticism of Osborne's failure to appoint a woman to the MPC. The nine-member committee, which meets monthly to set interest rates under the chairmanship of Carney, has been without a female member since Kate Barker left in May 2010. The appointment of Nemat Shafik, a former deputy managing director of the International Monetary Fund and former senior civil servant, was one of three announced. Ben Broadbent, already on the monetary policy committee, will take over as a deputy governor from Charlie Bean when he retires this summer. City grandee Anthony Habgood becomes chairman of court at Threadneedle Street, the equivalent of heading the Bank of England's board.
Shafik's post is a new role at the Bank – deputy governor responsible for markets and banking. It means Carney now has four deputies. Her appointment, effective from August, comes as the Bank fights to shore up its credibility amid a worldwide probe into alleged rigging of foreign exchange markets. The 51-year-old was just 36 when she became the youngest ever vice president at the World Bank. In her new role at Threadneedle Street she will represent the Bank in meetings with other central banks, the IMF and other institutions, and will sit on the BoE's financial policy committee and court of directors. She will take the place of Paul Fisher on the MPC when his term ends in June. Carney, who moved to the Bank from the Bank of Canada last summer, set out his vision for a organisation with many responsibilities "but a single timeless mission" in a speech in London.
Carney, who is pushing through a shakeup of the Bank's structure, welcomed the three new appointments. He was critical of attempts under the former chancellor Gordon Brown to focus Bank policy on an inflation target and attacked a consensus over the past two decades that central bankers' primary goal should be price stability.
"With a diverse combination of skills and experience, these appointments result in a well-rounded senior management team at the Bank – one that will set the direction for an ambitious agenda of transformation for the institution and enable it to meet the challenges and opportunities it faces in maintaining monetary and financial stability," he said in a statement. "This focus initially made sense since one of the greatest challenges for macroeconomic policy in the late 1970s and 1980s was the fight against inflation," he said. "However, with time, a healthy focus became a dangerous distraction."
The Bank said that Shafik would be responsible for reshaping its operations and balance sheet, including "ensuring robust risk management practices". She will also help develop and implement "an eventual exit" from quantitative easing, whereby the Bank pumped billions in electronic cash into the flagging economy during the downturn. He described the move by Brown in 1997 to give the Bank independence to set interest rates focusing on an inflation target as a "deconstruction of the old model of central banking".
Habgood, who is chairman of Whitbread, takes over as chair of the Bank's court of directors from David Lees, who leaves at the end of June. "In my view, while there were enormous innovations of enduring value during this period, the reductionist vision of a central bank's role that was adopted around the world was fatally flawed," Carney said in his Mais Lecture at the Cass Business School in London.
As the new deputy governor for monetary policy, Broadbent will be responsible for the Bank's analysis of the UK and international economies that feeds into interest rate decisions. He takes on the post at a turning point in the cycle for borrowing costs. After five years at a record low of 0.5% interest rates are expected to start rising again in 2015, albeit gradually, as the economic recovery gathers steam. Referring to the "fight against inflation", he said: "With time and increased confidence, policymakers would win that war only to lose the peace."
Announcing the appointment, Osborne said: "I am delighted to announce the appointment of three such highly qualified and experienced people to join the Bank's already excellent executive team. Their impressive experience of business, economics and international finance will strengthen and diversify the Bank's top team and enable them to continue to face Britain's ongoing economic challenges from a position of strength." Talking about the Bank's response to the crash, he said if it "knew then what we know now" and had had the powers it now has, the UK might have moved "towards Canadian outcomes" and avoided the stagnation at the tail end of the crisis.
In further changes, Spencer Dale, currently an MPC member and the Bank's chief economist, will become executive director for financial stability, joining the financial policy committee. He effectively swaps roles with Andy Haldane, currently executive director for financial stability, who becomes chief economist and joins the MPC. Egyptian-born Shafik, who is also a British and US national, will take up a new role at the Bank – deputy governor responsible for markets and banking. This means Carney has four deputies.
Changes to the MPC will give market players plenty to think about as they seek to predict when the first move in interest rates will come. She arrives as the Bank fights to shore up its credibility during a worldwide investigation into the alleged rigging of foreign exchange markets.
David Tinsley, economist at BNP Paribas bank in London, said: "What does all this mean for the direction of policy? Well the truth is it is hard to know, but it certainly adds a degree of raised uncertainty as to how the debate on the MPC will go from the second half of this year, when most of the changes occur." Carney highlighted "serious issues" raised by such scandals. "Changes must be made to both the hard and soft infrastructure of core markets to ensure they are fair, effective and efficient," he added.
"In Paul Fisher's departure the MPC is clearly losing a 'dove'. But in Dale's move off the MPC it is also losing a 'hawk'. At the same time Nemat Shafik's views will be an unknown quantity for a while (she may hug the consensus until she feels more up to speed with the UK conjuncture). Andy Haldane has a reputation as a 'free thinker'. How this translates into his views on monetary policy are not clear." His plans for sweeping changes follow a review by management consultants at McKinsey and Carney's speech was characterised by phrases such as "synergies and complementarities" and "a single timeless mission".
He described the financial crisis as a "powerful reminder" that price stability alone was not enough to guarantee wider macroeconomic stability. Warnings about such risks were not followed up with any action, he added.
He insisted lessons had been learned and "enormous new powers" promised to the Bank were now being fulfilled with the creation of new committees and watchdogs policing banks and financial markets.
As part of reforms seeking to counter criticisms of the Bank's sprawling and opaque structure, Carney announced the creation of an oversight unit modelled on the independent evaluation office of the IMF. Habgood, who is chairman of Costa Coffee owner Whitbread, takes over as chair of the Bank's court of directors from David Lees, who leaves at the end of June.
As the new deputy governor for monetary policy, Broadbent will be responsible for the Bank's analysis of the UK and international economies that feeds into interest rate decisions. He takes on the post at a turning point in the cycle for borrowing costs. After five years at a record low of 0.5%, interest rates are expected to start rising again in 2015, albeit gradually, as the economic recovery gathers steam.
Carney said: "As the MPC has signalled, a low for long interest rate environment will likely be with us for some time."
Andrew Tyrie, chairman of parliament's Treasury committee, said the reforms appeared to be "an important step in the right direction". However, the Conservative MP said the committee would want to examine the process behind Shafik's appointment.
On Habgood's role, Tyrie said: "Stringent self-examination has not been a strong point of formal Bank governance. Further reform, both cultural and structural, may be needed."