Bailey Wins BOE Helm to Steer U.K. Through Brexit After Carney
(Bloomberg) -- Andrew Bailey will replace Mark Carney at the helm of the Bank of England after the U.K. government chose a candidate who has criticized European Union financial rules to lead the British economy in the next phase of Brexit.
The current head of the U.K.’s top financial regulator will become governor on March 16. Carney, who was scheduled to leave in January, extended his term to allow for a smoother handover. Britain is set to exit the European Union on Jan. 31, a deadline that is virtually guaranteed after Prime Minister Boris Johnson was returned to power this month.
Bailey was “the standout candidate in a competitive field,” Chancellor of the Exchequer Sajid Javid said. “Without question, he’s the right person to lead the bank as we forge a new future outside the EU.”
The appointment comes despite recent speculation that Minouche Shafik, a former deputy governor who wasn’t enamored by Brexit, would get the job. She would have been the first woman to lead the central bank in its 325-year history, and Javid’s choice opens the government up to criticism that it’s failing to address gender diversity at the BOE.
Unlike Carney, who started in 2013, Bailey agreed to serve a full eight-year term. The 60-year-old is in many ways the ultimate BOE insider and was seen as the top contender in every Bloomberg survey of economists. He was once so hotly tipped that online oddsmaker Betway stopped accepting bets on his appointment.
Bailey has publicly aired doubts about EU financial market regulation, a stance that could have brought his candidacy to the attention of Johnson and Javid. In June, the FCA chief said disgraced U.K. stockpicker Neil Woodford was able to engage in “regulatory arbitrage,” exploiting gaps in the bloc’s regulation of mutual funds.
Mutual fund rules are an “excessively rules based system, and that’s a feature of much of the EU’s system,” he said then.
Asked if views on Brexit affected his choice, Javid said the thing that mattered most was experience.
U.K. INSIGHT: Four Challenges for Bailey in a Post-Brexit World
Bailey’s star was considered to have faded lately after a series of perceived missteps in his role leading the Financial Conduct Authority, charged with ensuring that financial markets operate fairly. He weathered a slew of scandals including the collapse of so-called mini-bond firm London Capital & Finance, seizing up investors’ retirement funds, the demise of Woodford’s investing empire, and the gating of M&G Plc’s property fund earlier this month.
Bailey was appointed just a day after the FCA was asked by the BOE to investigate the “misuse” of the audio broadcast of some of its press conferences that might have given traders an unfair advantage.
Former Chancellor Philip Hammond said he’d search internationally for Carney’s successor, but candidates such as Raghuram Rajan have suggested that the wrangling over Brexit discouraged them from seeking the role.
“Bailey is the most able and competent BOE official I worked with: by far the steadiest under fire in the financial crisis,” Nick Macpherson, the former head of the U.K. Treasury, said on Twitter on Friday. “He won’t make waves unnecessarily. But his all-round experience will help to steady economic policy at a challenging time.”
What Bloomberg’s economists say
“Although he has never set interest rates at the central bank -- we don’t think that matters too much. The job of Governor has morphed in the past few years to reflect its changing composition and responsibilities. What’s needed now is a solid manager rather than a specialist in macroeconomics.”
-Dan Hanson. Read his U.K. INSIGHT
Bailey will receive 495,000 pounds ($645,000) a year. That’s more than Carney’s salary, but doesn’t include pension and housing benefits that brought the current governors remuneration up to almost 900,000 pounds. The details of Bailey’s benefit package haven’t yet been made public, though he won’t get a housing allowance.
The chancellor addressed concerns over the BOE’s independence. Members of his own party have repeatedly attacked Carney for his warnings on the economic fallout of a disorderly Brexit. Javid said he wants Bailey to “uphold vigorously” the institution’s independence.
“It is critical that the governor and indeed everyone working with the governor in the Bank of England is independently minded,” he said. The institution should make “whatever decisions that it feels necessary without any interference whatsoever.”
For all his experience, Bailey was never part of the central bank’s interest-rate setting committee, meaning his views on monetary policy are largely unknown.
The BOE has often been in limbo since the 2016 Brexit referendum, with the subsequent uncertainty leading the nine-member policy makers to keep their benchmark interest rate mainly unchanged.
Now, with the economy flagging, two officials are calling for a rate reduction, and some banks expect that in 2020. There could also be a push in the other direction on the basis that a smooth departure from the EU would open the way to tightening.
Bailey joined the FCA in 2016, lauded by former Chancellor George Osborne as “simply the most respected, most experienced and most qualified person in the world” for the role. Osborne had also appointed Carney.
That followed a distinguished career at the BOE, where his roles included deputy governor, chief of the Prudential Regulatory Authority and private secretary to the governor -- who was Eddie George at the time -- a job seen as a launchpad for leaders. He graduated from the University of Cambridge with a degree in history and a doctorate in economic history.
Bailey is highly regarded for his work a decade ago on Northern Rock, the bailed-out mortgage lender that experienced the first run on a British bank in more than a century. His wife, Cheryl Schonhardt-Bailey, is a political science professor and American, giving him social ties across the Atlantic.
Navigating Brexit will be Bailey’s biggest challenge as attention turns to the December 2020 deadline for a trade deal. The BOE has assured banks and investors that the financial system is as prepared as it can be.
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