LONDON — In a surprising departure from convention, the British government selected Mark Carney, the head of the Canadian central bank, to succeed Mervyn King as the next governor of the Bank of England on Monday.
The appointment ended a months-long process in which some of Britain’s most prominent public officials vied for a post that will come with sharply enhanced powers.
The odds had appeared stacked in favor of the Bank of England’s deputy governor, Paul Tucker, getting the job. The decision to select a foreigner to lead Britain’s most storied financial institution came as a shock when George Osborne, the chancellor of the Exchequer, broke the news during a session of Parliament on Monday.
The appointment is arguably the most significant in the bank’s 318-year history in that Carney will not only be the first foreigner to lead the bank but will also take responsibility for the health of the British financial system. Besides doing the traditional job of setting interest rates, the central bank will directly regulate and oversee the country’s banks and other financial institutions. Until now, such regulation and oversight has been primarily the job of the Financial Services Authority, which will be scrapped.
Carney will assume the governor’s post in July, and the pressures facing him will be immense. Not only must he make decisions as to whether to continue the central bank’s aggressive money-printing program aimed at stimulating the economy, but he must also ensure that the institutions’ independence and reputation are not sullied by an ongoing investigation into commercial banks’ manipulation of key interest rates.
The central bank’s new heft represents a stark shift from the era of light touch regulation that held sway before the crisis, in which the Bank of England’s ability to intervene and issue warnings about financial excess were constrained.
The central bank will exercise its broader powers through a newly formed Financial Policy Committee, operating inside the central bank and presided over by the governor. It is hoped that the new powers will allow the bank to sniff out early warning signals, like excessive risk taking and borrowing by banks, and move to take action to ward off a crisis — something it was not able to do in 2007.