New governor told of need to overhaul bank’s culture

Future Bank of England governor Mark Carney must not lose sight of the need to revamp the central bank’s “hierarchical” culture when he takes over on July 1, MPs said yesterday.

Members of the parliament committee that scrutinises the BoE have had a spiky relationship with the current governor, Mervyn King, who they accuse of a high-handed approach.

But when Mr Carney appeared before the MPs in February, he said he would seek consensus – something which the committee welcomed in a formal report on Mr Carney’s appointment.

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“If these commitments result in meaningful change to the current hierarchical decision-making processes and culture of the Bank, this will be a highly significant development,” the committee said yesterday.

However, Mr Carney will have his work cut out to avoid a clash with other policymakers when he arrives at the bank. Under a new remit from Chancellor George Osborne, the bank must decide by early August whether it plans to use so-called “intermediate targets” to provide long-range policy guidance.

In his current role as head of Canada’s central bank, Mr Carney has championed committing to keep interest rates low until a certain intermediate target, such as a level of unemployment, is reached. But some BoE officials have deep reservations about whether this would work in Britain.

At a Reuters event on Thursday, Mr Carney again praised this approach, which is also taken by the US Federal Reserve.

“It helps market participants understand not exactly the timing of adjustment of interest rates but the minimum conditions before the Fed even thinks about adjustment of interest rates,” he said.

Mr Carney will be taking over the bank at a time when there is major uncertainty about the best course for monetary policy at a time of economic stagnation and above-target inflation, and when the bank has also just assumed major new regulatory powers.

MPs said they were worried that the arm of the BoE responsible for supervising banks, the Prudential Regulation Authority, would hurt competition in Britain’s already concentrated banking market through over-regulation.

“The risk will remain high that ... it may merely pay lip service to competition considerations. This would be of great concern, given the potential for prudential requirements to act as a barrier to entry and to distort competition,” they said.

Meanwhile, Mr Carney said global regulators will provide more clarity in a year’s time on guidelines for financial benchmarks like Libor.

Finance officials from the Group of 20 major economies plan to task the Financial Stability Board (FSB) – which Mr Carney heads – with overseeing the reform of such benchmarks.