It’s official. The 121st Governor of the Bank of England will be Andrew Bailey.
The chancellor says he was “the stand out candidate” during the recruitment process and that he had “no hesitation recommending him to the prime minister”.
Bailey worked at the Bank of England for 30 years, before moving to lead the Financial Conduct Authority (FCA) in 2016. At the Bank, Bailey was a deputy governor, chief cashier and private secretary to Eddie George, a previous governor.
Sajid Javid describes Bailey as a “leader of international standing, with expertise across economic and regulatory matters”.
True enough. Indeed, Bailey was initially considered to be a favourite to take over from Mark Carney but his chances of getting the job were assumed to have diminished following widespread criticism of the FCA’s handling of a succession of recent financial scandals.
The FCA was accused of failing to move quickly enough to protect consumers from the collapse of London Capital & Finance, which is set to cost investors up to £236 million, and Neil Woodford’s equity fund, which froze £3.7 billion of investor funds.
Bailey refused to publish the details of the FCA’s investigation into whether the Royal Bank of Scotland mistreated small business customers (in the end, MPs did so). Eyebrows were also raised last year when the FCA fined Jes Staley £642,000 for attempting to unmask a whistleblower but allowed him to remain as CEO of Barclays.
Paul Myners, the former City minister, is critical of the FCA’s failings but doesn’t think blame can be laid at Bailey’s door. "It’s hard to pin anything on Andrew personally, the problem is the FCA’s design and the confusion about its legal obligations and structure," he said.
Myners describes Bailey as a “good, solid appointment”.
The two men worked together closely during the financial crisis when the banking system was on the verge of collapse.
“He was an absolute brick, exceptional in his contribution when the then-governor [Mervyn King] was panicking” says Myners.
"But one negative is he is a rather quiet person. I’m not sure how he will deal with the role and the much higher public profile that Mark Carney has given it."
Newly appointed governor led charge against payday lenders
The position of governor of the Bank of England carries both prominence and power. The governor is responsible for keeping prices low and stable, sustaining economic growth and employment and ensuring the banking system is robust and well run.
Despite the FCA’s track record, Bailey is definitely not “soft” on financial institutions. He led the charge in stamping out the egregious practices of payday lenders and has frequently leaned into the lobbying of banks.
Bailey was central to the Bank of England’s response to the financial crisis.
He helped devise and implement the Senior Managers Regime which was designed to ensure that directors of banks can in future be held personally responsible for the misconduct of the organisations they lead. The banks hated this reform, for obvious reasons, and sought to resist it by threatening to desert the City of London. Bailey stood his ground, the banks stayed put.
Bailey also knows the European regulatory landscape backwards, a very useful quality as the government begins the process of negotiating a free trade deal with the EU.
What’s on the table for financial services at the moment is “equivalence”, which will oblige the UK and the City of London to follow a rule book set in Brussels. Bailey has repeatedly made it clear that the UK needs free reign to design its own rules post-Brexit so watch this space.
New governor will have to navigate Brexit landscape
Brexit will dominate Bailey’s time as governor in the same way that it has done Carney’s.
The Bank Of England assumes that Brexit will involve an ”orderly transition to a deep free trade agreement”. That’s precisely what Boris Johnson promises and precisely what so many doubt he can deliver. If he fails then the UK economy faces the prospect of a so-called "Hard Brexit" early in 2021.
The Bank has repeatedly made clear its view that such a outcome would be negative, perhaps profoundly so.
The chancellor said on Friday morning that it is “critical” that the role of governor remains independent of government - but over the last three years or so Mark Carney has regularly found himself accused of being partisan.
Rightly or wrongly; Carney is widely perceived to be a Remainer and disdainful of the whole idea of Brexit. Bailey’s views are completely unknown, he would be wise to keep things that way.
Another advantage Bailey has is that the subject of Brexit should have become slightly less politically charged. The election result makes the UK’s departure from the EU by January 31 an inevitability but the Bank still has a massive technical job to do, working out what leaving will mean for regulation.
The UK has to take full responsibility for oversight of the City of London, one of the world’s biggest financial centres. Where does it stand on MIFID (the markets in financial instruments directive) and Solvency II? Will Bailey want to do things differently?
As well as devising plans to deal with the known unknown of Brexit, Bailey may have to deal with the unexpected. Historically, recessions occur once every decade, the last one was more than 10 years ago.
The odds are that Bailey will have to lead the response to a downturn (Brexit induced or not) at some point in the next eight years. Bank Rate remains seemingly stuck at near zero, in a way that would have been unthinkable a generation ago.
In the case of another emergency, there’s not much room for manoeuvre. Bailey’s challenge will be to explain to businesses and households what the limits are of what the Bank can and can’t do. To that end, it may well be that he feels the Bank’s mandate - to target inflation at two per cent - needs rethinking.
Carney invested time and energy widening the Bank’s sphere of influence. He decided to highlight the potentially catastrophic economic impacts on climate change and the need for financial institutions to play an active role in preventing it.
Is this a job Bailey will devote as much time to? Behaviour urgently needs to change if society is going to wean itself off a dependence on fossil fuels and hit the UK’s target of net zero by 2050. The hardest yards lie ahead. The Bank could play a prominent role in shaping the debate and setting new incentives for investors.
There will, I’m sure, be broad agreement that Andrew Bailey is an extremely well qualified man for the job. The question some will ask is why hasn’t the government chosen an extremely well qualified woman?
Bank of England declines to appoint first female leader
Britain has had two women prime ministers but no women chancellors or Bank governors. A year ago the Bank was urged by MPs on two select committee to change the imbalance at the organisation, at all levels, to recruit, develop and promote talented women and to better reflect the ethnicity of the UK.
There were bright and brilliant female candidates. Indeed Minouche Shafik, director of the London School of Economics, was widely reported to have been lined up for the job.
The Financial Times claims her views on Brexit counted against her and that Boris Johnson blocked her appointment. Asked if the candidates’ previous views on Brexit had been a consideration, Sajid Javid insisted “the only consideration was getting the best person for the job”.
The Bank has become more diverse under Carney but that isn’t necessarily saying very much. The ambition of having 35% of senior roles filled by women by 2020 is on target to be met but only one of nine members of the monetary policy committee (which sets interest rates) is female and the Bank is a long way short of hitting its target of having 20% of senior staff from black, Asian and ethnic minorities.