It was November, 2008, and the financial crisis was raging.
Prime Minister Stephen Harper had just swallowed his free-market leanings and ordered Industry Canada to work with the United States on a government bailout of General Motors and Chrysler.
It was a momentous decision, and one that quickly ran into a farcical hurdle: No one at Industry knew whom in Washington to call.
The problem wasn’t one of incompetence, exactly. The Treasury Department was leading the auto bailout, and Industry simply had few dealings with that branch of the U.S. government. In normal times, lines of communication easily could have been opened. But these weren’t normal times.
Taking a call from a stranger from Canada wasn’t a priority.
The seriousness of the situation shouldn’t be underestimated. The auto rescue was going ahead with or without Canada’s participation; the longer the federal government was left out of the planning, the less leverage it would have to keep GM and Chrysler plants in Ontario from closing. Hanging in the dead air between Ottawa and Washington was the threat of hundreds of lost Canadian jobs.
Then Tiff Macklem joined the fray. It wasn’t his assignment, but Mr. Macklem – then one of the top officials at the Finance Department and now the Bank of Canada’s senior deputy governor – had a long list of contacts around the world, including in Washington.
It wasn’t so much that Mr. Macklem knew who to call; it was that someone in Washington answered. Before long, Industry and the Treasury were talking. “Tiff was a great bridge,” says Paul Boothe, who was Canada’s lead negotiator on the auto bailout. “He used those relationships to make sure Canada was at the table.”
The episode – though just a footnote in the history of the financial crisis – says a great deal about Mr. Macklem, a public servant who has played a role in some of the most important economic policy decisions Canada has taken over the past two decades.
As a young researcher at the Bank of Canada, he helped formulate the intellectual basis for the central bank’s inflation target. More recently, he’s brought a Canadian touch to the overhaul of the global financial system as one the lead drafters of new banking regulations.
Yet Richard Tiffany Macklem, known to many simply as “Tiff,” is only now stepping into the spotlight. After several months of scrutiny, he remains the runaway favourite to become the next governor of the Bank of Canada, replacing Mark Carney, who in November accepted the British government’s offer to lead the Bank of England effective July 1.
“He’s an incredibly smart guy,” says Craig Alexander, chief economist at Toronto-Dominion Bank. “He’s the natural successor.”
Mr. Macklem will be among the final group of candidates that the Bank of Canada’s board of directors is set to interview next week during a two-day meeting that begins Tuesday. David Laidley, the board member who has been heading up the job search, then will present Finance Minister Jim Flaherty with a short list of “qualified candidates,” likely ranked in order of preference, according to a person familiar with the hiring process. Mr. Flaherty said in January that he intended to interview the final candidates himself. The final decision, by law, is made by cabinet.
Conversations with a dozen people who have worked with Mr. Macklem result in a portrait of a public servant who is respected by fellow economists and admired by peers and subordinates.
But Mr. Macklem’s trump card – the reason the selection of anyone else would be such a shock to financial markets – is the hard-to-find savvy he showed at that historic moment back in 2008. Mr. Flaherty likes to say that the financial crisis shows that Canada isn’t an island; no matter how well a country conducts its own affairs, no one is safe from havoc whipped up somewhere else. There is no other serious candidate to run the Bank of Canada who is better connected to what is going on in the global economy and international financial markets than Mr. Macklem.
He has been attending global economic gatherings for more than a decade, and has developed an expertise in financial regulation that can’t be learned in text books because it is being written in real time – and Mr. Macklem is one of the lead authors. After world leaders vowed to overhaul banking regulation, European Central Bank president Mario Draghi, who was at the time Italy’s top central banker and the head of the international Financial Stability Board, hand-picked Mr. Macklem to lead one of three committees responsible for sorting out technical impediments to the Group of 20’s broad goals of containing the biggest banks and for curbing the proliferation of exotic financial assets.
“He has a deep knowledge,” says Joerg Asmussen, a German member of the European Central Bank’s executive board. “After Mark Carney, in the international economic-and-financial world, he is the most known and respected Canadian.”
Potential governor material
After a speech in Washington in December, Conference Board of Canada chief economist Glen Hodgson was asked by a member of his audience to handicap the field of prospective Bank of Canada governors. As a former Finance official who also worked at the federal export agency, Mr. Hodgson knows his way around Ottawa. He told his audience that if the choice wasn’t Mr. Macklem, it would be a name he had never heard uttered.
That level of certainty only has hardened in the weeks since.
A lecture Mr. Macklem gave at Queen’s University in January was viewed by some on Bay Street as something of a debut, as the former Bank of Canada researcher described in detail for his alma mater the major challenges facing Canada’s economy, including an analysis of why Canada’s relatively sudden struggle to compete in export markets is a far deeper issue than a strong currency.
Mr. Macklem, a 51-year-old native of Montreal, first joined the Bank of Canada in the mid-1980s, where he quickly impressed as a talented and hard-working researcher. He steadily climbed the ranks, joining the Governing Council, the committee that advises the governor on interest rate decisions, in December, 2004.
When Mr. Carney left the suite at the Finance Department reserved for senior deputy ministers after being selected governor in 2007, Mr. Macklem replaced him. He would spend the next few years on the front lines of the global fight against the financial crisis with Mr. Carney and Mr. Flaherty. In 2010, Mr. Macklem returned to the Bank of Canada after winning a competition for senior deputy governor.
Within the institution, he long has been seen as potential governor material. “It was a challenge to find something that he wasn’t already aware of,” says Sébastien Lavoie, an economist at Laurentian Bank of Canada in Montreal who worked for Mr. Macklem at the central bank. “It just comes naturally to some people.”
Still, there is a slight reluctance on Bay Street to commit to a coronation. That’s in part because recent history has mocked the wisdom of the crowd. In each of the past two competitions to lead the Bank of Canada, the heirs apparent – Malcolm Knight and Paul Jenkins, both senior deputy governors – lost to outsiders David Dodge and Mr. Carney, respectively.
Mr. Flaherty also muddied the waters in January when he issued a press release stating that he would interview the top candidates. Mr. Flaherty also vetted Mr. Carney personally, but he didn’t advertise it. Mr. Flaherty’s press release was seen by some as a reminder that the selection of the central bank governor ultimately is a political decision – and that politics are inherently uncertain.
Economists at New York-based JPMorgan Chase & Co. published a report early this month that put the odds of Mr. Macklem becoming the next Bank of Canada governor at slightly better than 50 per cent. “The market is underestimating the possibility of a surprise,” Kevin Hebner and Sandy Batten advised the bank’s clients.
That’s not how TD’s Mr. Alexander sees it.
He handicaps the race for governor by thinking about all the qualities that the leader of the Bank of Canada should possess. Mr. Alexander says Mr. Macklem is the only candidate who meets all the criteria.
Kevin Lynch, vice-chairman at Bank of Montreal, might be a dream recruit if only he were younger.
He possesses all the qualities that a modern central bank governor needs. Mr. Lynch, a PhD economist, ran the Finance Department, Industry Canada, the Privy Council and represented Canada at the International Monetary Fund over a 33-year career in Ottawa that began at the Bank of Canada in 1976. But he says he’s not interested in the job. “I intend to stay retired” from public service, he told The Globe and Mail in an interview in November.
Christopher Ragan, an economics professor at McGill University in Montreal, and Andrew Spence, a managing director at the Ontario Municipal Employees Retirement System, both are regarded highly for their knowledge of monetary policy, and both have spent some time in government and at the Bank of Canada as advisers. (Both have said they would be “honoured” to be considered, without stating specifically that they had applied for the job.)
Neither man can match Mr. Macklem’s experience as a practitioner, nor do they have any experience managing a large institution, as Mr. Macklem has been doing for more than two years. The senior deputy governor at the Bank of Canada serves much the same function that a chief operating officer at a corporation.
Stephen Poloz, the president of Export Development Canada, is perhaps the most serious contender not named Tiff Macklem.
It’s an open secret in Ottawa that Mr. Poloz, 57, covets a chance to lead the central bank, where he worked for 14 years in the 1980s and 1990s. (Through EDC’s spokesman, Mr. Poloz declined to comment on whether he now is pursuing the job.)
His management experience is similar to that of Mr. Macklem: Mr. Poloz has run EDC, an institution of 1,100 people, since January, 2011, while Mr. Macklem has handled day-to-day management of the Bank of Canada’s 1,200 people for almost a year longer.
The two men also have remarkably similar pedigrees. Both studied at Queen’s in Kingston, Ont., and both earned their PhDs in economics at the University of Western Ontario in London. Mr. Poloz briefly supervised Mr. Macklem when their tenures at the Bank of Canada overlapped in the 1980s.
“He’s a very able guy,” William Robson, president the C.D. Howe Institute, a Toronto-based think tank, says of Mr. Poloz. “If the search committee goes outside the Bank of Canada, he’s on the top of the list of outsiders.”
The demands of central banking
Yet the qualifications of Messrs. Macklem and Poloz diverge on what has become a central element of setting policy at a major central bank.
When Mr. Poloz was last at the Bank of Canada, the business of central banking was seen as relatively simple. You plugged the latest economic indicators into your economic models, applied a little judgment and then raised or lowered the benchmark interest rate.
“Central banking, a few years ago, the only thing you had to do was cut or raise interest rates every four weeks,” the ECB’s Mr. Asmussen says, only half-jokingly. “Central banks have a much broader range of tasks now, whether they like it or not.”
Charting a path back to a more normal interest rate setting after an exceptionally long period of ultra-low borrowing costs will be the primary task of the next Bank of Canada governor.
But that mission will involve more than simply keeping an eye on prices. The crisis revealed that international financial markets must also be tamed.
“The financial stability wing of the central bank has become more important than it was before,” says Charles Freedman, a former deputy governor who retired in 2003. “Twenty or 30 years ago, that work was essentially done by only a few of us. There are whole departments devoted to it now.”
Unlike Mr. Carney, Mr. Macklem has no direct experience in banking. Otherwise, he’s had the best training money can buy.
When he was at Finance as associate deputy minister, Mr. Macklem teamed up with Mr. Carney to sort out the collapse of Canada’s market for asset-backed commercial paper in 2007, and as the top international economic official at Finance, he became deeply involved in the Group of 20’s response to the crisis.
“He has always been a first-rate performer in being able to contribute to meetings,” says Mike Callaghan, the top international official at the Australian Treasury during the crisis. “If Tiff got involved, and when Tiff came to speak, everyone would listen. We knew it was going to be a very substantive contribution. He has a great capacity to pull things together.”
For such an overwhelming favourite, Mr. Macklem has a remarkably low public profile. Mr. Boothe, the official who teamed with Mr. Macklem on the auto rescue and who is now a professor at the Richard Ivey School of Business at the University of Western Ontario, says his former colleague is better known abroad than he is at home.
That’s partly because of the way Ottawa works. By convention, the Bank of Canada communicates first and foremost through the governor, and Prime Minister Stephen Harper has made a point of keeping the government’s senior bureaucratic advisers hidden back stage.
But it’s also a reflection of Mr. Macklem’s personality. Unlike his current boss, who once appeared on a television talk show backed by a song by rock bank AC/DC, Mr. Macklem tends to keep the press at a comfortable distance. “He never wants accolades,” says a Bay Street banker who knows him. “That’s not what he’s about.”
Mr. Robson, whose main research interest is monetary policy, observes that quiet leaders have followed brasher ones at the Bank of Canada before, citing the selection of mild-mannered Gordon Thiessen in 1994 to replace John Crow, who unapologetically raised interest rates to crush inflation.
He also says there are other ways to inspire confidence than by force of personality. If conducting monetary policy has become more complicated, explaining it has become doubly so. Mr. Robson says he rarely has seen an economist better at helping people understand the technical aspects of central banking than Mr. Macklem. “I’ve always been impressed by the ease with which he talked about those things,” Mr. Robson says. “It takes a certain amount of confidence to be able to do that.”
Still, there’s no reason to think that Mr. Poloz or any number of top-flight economists would be incapable to doing the same. Mr. Macklem’s edge in the competition for Bank of Canada governor is that he would keep Canada in a game that has gone global.
Mr. Carney’s unique strength as a policy maker is his broad network of insiders, which he taps for real-time intelligence on the global economy and financial markets and the ongoing international effort to rebuild both.
That priceless source of information will disappear with Mr. Carney when he decamps for London later this spring to take over the Bank of England.
If Mr. Flaherty chooses to make a priority of plugging that hole, he has a natural choice, close at hand.
Tiff Macklem, senior deputy governor, Bank of Canada
He’s spent more than two decades studying the Canadian economy, has been hardened by the financial crisis, and is admired by those who work for him. Mr. Macklem lacks Mr. Carney’s ability to capture the spotlight, but after spending four years competing with his central bank governor for attention, Finance Minister Jim Flaherty might consider that a good thing.
Stephen Poloz, president, Export Development Canada
Like Mr. Macklem, he’s a well-liked and highly respected economist with degrees from Queen’s and the University of Western Ontario. Unlike Mr. Macklem, he was removed from all the hard lessons of the Great Recession, and he lacks the Group of 20 connections. Also working against Mr. Poloz is how effectively he’s run EDC. Why rock the boat?
Jean Boivin, associate deputy minister, Finance Department
He’s a rising star in Ottawa who has co-authored academic research with U.S. Federal Reserve Board chairman Ben Bernanke. He’s also very young. Mr. Carney’s selection as governor at the age of 42 was considered a surprise. Mr. Boivin is only 40. He could be governor some day, but not this time.
Michael Evans, vice-chairman and head of growth markets, Goldman Sachs Group Inc.
Goldman Sachs has a tradition of sending its top bankers to the public sector, and as a member of Canada’s gold-medal entry in the men’s eights rowing competition at the 1984 Olympics, Mr. Evans satisfies the requirement that the governor of the Bank of Canada must be a Canadian. But unlike the Goldman alumnus who currently leads the Bank of Canada, Mr. Evans never has worked in government. He also would have to take a rather tremendous pay cut. The governor’s salary tops out at around $500,000. Mr. Evans’s 2012 bonus was Goldman shares worth $10.6-million (U.S.).