BOE Starts Post-Carney Era With Another Crisis Veteran at Helm

(Bloomberg) --

Andrew Bailey knows a few things about crises, which should put him good stead on Monday when he takes the helm of the Bank of England as it tries to stave off recession triggered by the coronavirus pandemic.

The 60-year-old is already in the heart of the action. Just hours before he officially started, he was part of a coordinated move by central banks including the U.S. Federal Reserve to inject liquidity into the global financial system.

That’s reminiscent of Bailey’s role helping shape the BOE’s response to the financial meltdown of 2008, when he was instrumental in saving Northern Rock after it was hit by a bank run.

His subsequent time at the Financial Conduct Authority saw him grapple with a number of scandals -- not always laudably, say his critics -- and stories of him supporting his wife over the telephone after a bear wandered into their Idaho home have passed into City legend.

“You want your central bank governors to have lived through crises and come out the other side neither shaken nor stirred,” said Richard Barwell, an economist at BNP Paribas Asset Management. “The fundamental problem is that there is precious little monetary ammunition left. A seasoned central banker who has been battle tested is not a bad place to start.”

Bailey was also involved last week as the BOE worked alongside the U.K. Treasury in shaping their response to the virus. He appeared with outgoing Governor Mark Carney at a press conference to explain the BOE’s emergency policy stimulus.

While Carney talked the assembled media through the decision, it was Bailey who set the tone for the future, saying that policy will be under “constant review and consideration.” He also insisted that there is more space available for easing.

Even after Sunday’s action, there could be more to come. HSBC forecasts the new governor will hit the ground running at his first policy meeting on March 26, cutting the key rate to 0.1% -- officials have said they don’t want European Central Bank-style subzero policy -- and adding 60 billion pounds ($74 billion) of asset purchases.

That would leave precious little in the larder. On Wednesday, Bailey said the latest emergency measures had used up almost half of the remaining policy space, equivalent to 250 basis points of easing taking into account asset purchases and rate guidance.

He has also considered the question of how much central banks can really do in the face of the virus. At his appointment hearing in Parliament this month, he heavily pushed the idea of working hand-in-hand with the government, saying “we can’t let our notions of independence get in the way of us.”

Last week’s twin response, when the Chancellor of the Exchequer delivered a budget hours after the BOE’s action, showed he’s in tune with the politics of the moment.

“We still think that monetary policy can do little to offset the near-term economic hit,” said HSBC chief European economist Simon Wells. “It won’t enable quarantined people to get back to restaurants and cinemas if doctors’ orders are to stay at home. We see the BOE’s assertive stance as about instilling confidence.”

Bailey is viewed as a safe pair of hands and, perhaps decisively for his appointment, steered clear of Brexit controversy by keeping his views quiet enough to be acceptable to most future governments.

His track record as head of the FCA hasn’t been stellar though. He went through a slew of scandals, from the now defunct London Capital & Finance to the collapse of the investment empire run by Neil Woodford. These were accompanied by the gating of M&G Plc’s property fund and ongoing questions about the FCA’s handling of Royal Bank of Scotland Group Plc’s small-business lending unit.

Campaigner Gina Miller -- best known for bringing the lawsuit that forced the U.K. government to get parliamentary approval for Brexit plans -- has demanded an independent review of his BOE appointment, citing a “catalog of regulatory failures” during his time.

While British lawmakers confirmed his governorship, they also said they had “serious concerns” about his tenure as at the regulator.

In his new role, combating the virus is only the first task in an almighty set of economic and financial challenges facing Britain. Even before the pandemic, the economy was in poor shape, and data last week showed stagnation at the start of the year.

Years of Brexit uncertainty have hampered investment and eaten into productivity, and it’s unclear how the nation’s financial sector, which accounts for about 7% of GDP, will fare in trade negotiations between the government and the European Union.

Bailey has long been preparing for the top job at Threadneedle St., with his career including BOE roles as deputy governor, chief cashier and CEO of the Prudential Regulatory Authority. Early on, he was private secretary to Eddie George, the governor from 1993-2003. His record was enough to see him appointed head of the FCA by then-Chancellor of the Exchequer George Osborne -- though Bailey reportedly had one condition.

“He didn’t really want the job,” according to an editorial in the Evening Standard, a London-based newspaper now edited by Osborne. “He only asked for one thing in return: that he be considered a candidate for the next governor of the Bank of England. The then-Chancellor promised that he would be.”

To contact the reporters on this story: David Goodman in London at dgoodman28@bloomberg.net;Lucy Meakin in London at lmeakin1@bloomberg.net

To contact the editor responsible for this story: Paul Gordon at pgordon6@bloomberg.net

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