Firefighters go where the fires are.
So Bank of Canada Governor Mark Carney is leaving his current job, where he assures us there are no pressing conflagrations, for London and the role of head of the Bank of England, where there are plenty. As citizens of what the crisis of 2007-08 taught us is truly a global financial system, we ought to want our best people where the problems are.
Britain’s economy is in grim shape, having just emerged from a double-dip recession, and next door is the fast-sinking euro zone. The government of the United Kingdom is still dealing with zombie banks, and has much more complex financial regulation problems to solve than policy makers here in Canada. And amid all that sits London, which ranks with New York as the most crucial of financial centres.
Mr. Carney leaves a country that can spare him, both because the situation is less concerning and because this country has a long history of producing solid central bankers.
Our banks are functioning well and are smaller players in the most arcane financial markets. Canada is well up the curve on most of the international regulatory priorities, whether it be central clearing of derivatives or ensuring banks are meeting their Basel requirements on capital and liquidity buffers.
The housing market is the major potential source of problems that could sully Mr. Carney’s place in history. We have to take it on Mr. Carney’s good faith that he’s not deserting us with any major pitfall that he can see just around the corner. Having had some interactions with him over the years, it doesn’t seem like leaving to avoid a reckoning is his style.
As unexpected as the news is – because Mr. Carney had denied all the rumours that he would go to the Bank of England – there’s not all that much concern among senior Bay Street folks. Part of the reason is that they too believe that Canada is not heading for any huge economic fall.
More than that, they recognize that Canada has a track record of strong central banking. Mark Carney elevated the role to a more pop-star status, but there is a long line of competent bankers who have shepherded the country’s monetary policy and economic growth ably, if in a more low-profile manner. David Dodge and before him, Gordon Thiessen, did the job of central bank head admirably.
Ian Russell, the head of the Investment Industry Association of Canada, said that “having worked closely with all the senior leaders at the Bank of Canada, I have every confidence it will be business as usual at the bank following Governor Carney’s departure.”
Mr. Carney was seen as particularly suited to the role during the crisis, with his experience as a banker at Goldman Sachs giving him insight into how to deal with the huge problems that racked global financial markets.
Now, with the bulk of the crisis and the spadework on resulting regulatory changes behind us, the focus may return more to the more standard central banking work of interest rate setting, pointed out Royal Bank of Canada economist Paul Ferley.
“This may well argue for a skill set that includes a solid understanding of more traditional monetary policy tools,” he said, which suggests the Bank of Canada may promote from within its ranks.
If that is the case, the leading candidate is likely Tiff Macklem, the bank’s senior deputy governor.
Looking outside the bank, there are also plenty of candidates.
A name that has yet to come up much but is intriguing is Julie Dickson, head of the Office of the Superintendent of Financial Institutions. She doesn’t come from a monetary policy background, but then neither did Mr. Carney or Mr. Dodge. What she does have, as head of OSFI, is a firm grasp on the increasingly important role of financial system stability, a window on housing in her role as head bank watchdog, as well as a lot of credibility and a long working relationship with the other key regulators.
Whoever is next will have to deal with ensuring the housing market doesn’t become an economy-destabilizing problem. It’s not as simple as raising interest rates, as some have criticized Mr. Carney for avoiding.
Central bankers have far less control over interest rates in the real world than the all-powerful personas that the media give them. Beyond setting overnight rates, which govern floating-rate mortgages, the central bank’s ability to influence other key rates such as the cost of a five-year mortgage is quite limited.
But there will be no shortage of candidates who are up to the challenge. There’s no reason to believe that the well of people who can run this country’s monetary policy competently has run dry.