Bank of England Governor Mark Carney is, in a sense, already history. He has “stood” for his portrait – outgoing governors of Britain’s most powerful non-elected job usually avoid the less intrepid sitting position. The oil painting, by Brendan Kelly, will be hung shortly after Mr. Carney’s departure from the bank in March.
Like everything inside the bank, which was founded in 1694 and is fondly known among many employees as “Hogwarts,” the portrait’s display will follow an ancient tradition. It will replace the painting of his predecessor, Mervyn King, in the neoclassical parlour outside the governor’s office. Mr. King’s portrait above the fireplace will simply shift one spot to the left, as will that of his predecessor, Eddie George. And so on.
Mr. Carney will look like a youngster compared with some of the grizzled old men who adorn the walls. The former governor of the Bank of Canada is 54 and trim. He doesn’t look much older than the day he started the job in July, 2013 – almost three years before the Brexit referendum that bitterly split Britain – barring a bit more grey and the small bald patch forming at the back of his head.
The point being, he has another career in him. So what will it be?
Mr. Carney doesn’t much like the question, no doubt because the gossip machine spits out his name every few years as a contender for the leadership of the Liberal Party of Canada. The chatter has intensified since Prime Minister Justin Trudeau lost his majority in the October election. “I want to sleep,” Mr. Carney says, laughing. “I look forward to coming home. We’re going back to Canada. We still have our house in Ottawa.”
Ottawa itself is a clue that he might have public life in mind and, if he goes in that direction, a high-flyer like him is clearly not aiming for minister of corner stores or ambassador to Costa Rica.
Only a couple of weeks after we met, Mr. Carney did indeed fill in part of his post-Bank of England agenda. The secretary-general of the United Nations, Antonio Guterres, appointed him UN Special Envoy for Climate Action and Finance, an apparent reward for leading an effort to create a global task force in 2015 to ensure that banks, insurers and industrial companies can survive financial stress from potentially catastrophic climate change. Mr. Carney replaces former New York mayor Michael Bloomberg. Mr. Bloomberg, now a contender for the Democratic nomination in the U.S. presidential race, informally handed the role over to him in December at the UN’s climate summit in Madrid.
But the role is unpaid and part-time, meaning Mr. Carney still has some big career decisions to make.
Charlotte Hogg, another youngish high-flyer who was the first chief operating officer of the Bank of England, from 2013 to 2017, told me from the London offices of Visa Europe, where she is chief executive officer, that Mr. Carney seems destined for another big-name job. “He will do something amazing,” she says. “He has so much to contribute. He’s immensely able. He will change the world, whatever he does.”
A political career would seem fitting. Admirers and detractors alike say he injected what they call “political” elements into his Bank of England career by immersing himself in the Brexit and climate change files to the point that the mundane world of monetary policy sometimes seemed secondary. Mr. Carney insists he never breached the bank’s neutrality, nor strayed from its core mandate to ensure price and financial stability. But some critics, including former members of the bank’s all-powerful monetary policy committee (MPC), argue that he embraced mission creep.
“I think he found it quite difficult to distinguish between his role as an independent central banker and his political role,” says Andrew Sentance, the British economist who was an MPC member from 2006 to 2011. “Somehow, he merged the two together. Of course, climate change is a very important issue. Mark Carney sort of weaved it into his role in a political way. He wasn’t within his remit, to be honest."
Tony Yates, a former Bank of England economist, questions Mr. Carney’s focus on climate. “Why pick climate change?” he says. “Climate change is a risk, but I don’t think it’s immediate. It’s a very long-term risk. Much more immediate risk to the banks is, say, political risk, so he could have set up a unit in the financial risk area called Political Risk and Financial Instability.”
There is no doubt that climate change emerged as Mr. Carney’s defining issue in recent years, more so than fiddling with interest rates, which he hardly did at all – they stayed at or near rock-bottom levels throughout his tenure. Greenies around the world like him a lot.
I keep prying Mr. Carney about his career plans and a few clues do emerge. “I do think issues about the environment and the new economy are fundamental, and obviously they are particularly critical in Canada, and it’s very important we get them right back home,” he says. “There are a set of issues I would like to be involved in, in some way. But how exactly – academically or commercially or some other manner … ”
Trading London for Ottawa is bound to be a shock for Mr. Carney, his British-born wife, Diana – she and Mr. Carney met at Oxford University – and their four teenage daughters.
Mr. Carney is probably one of the highest-paid civil servants in the world. In addition to his base salary of £480,000 – three times what the U.K. Prime Minister gets – he receives an annual housing allowance of £250,000. His pension plan, taxable benefits and other goodies, including the housing allowance, took the haul in the past fiscal year to £884,000 ($1.5-million), according to the Bank of England’s annual report.
Replicating that income in Canada won’t be easy unless he plunges back into investment banking. Mr. Carney spent 13 years at Goldman Sachs before joining the Bank of Canada as deputy governor in 2003.
His opulent work settings will be impossible to replicate. To an outsider, his Bank of England digs really do seem like a Hogwarts fantasy.
The massive Bank of England site in the City of London, the financial centre, covers 3.5 acres, and the high exterior stone walls make it look like a fortress. Its warren of buildings and courtyards mostly date from the early 20th century, although bits of it are far older. Holed up inside are 4,500 employees, who do everything from monitoring reams of commercial bank and insurance company data and measuring inflation rates to guarding the subterranean gold bullion vaults and designing new banknotes.
Visitors are greeted by a steward in a pink jacket and a black top hat. The pink is known as “Houblon pink,” after Sir John Houblon, the bank’s first governor (1694-1697). Why that colour was associated with him has been lost to history. On a grey day in mid-November, I am escorted to the governor’s parlours on the main floor, where the corridors are covered in elaborate, Roman-inspired mosaics. Mr. Carney, looking dapper in a blue suit, comes bounding out to greet me. Before our interview, he gives me a quick tour of his corner of the bank.
The office is vast, its walls covered in oil paintings, not one of which is a rendition of Montagu Norman, the baron who was governor of the bank from 1920 to 1944. Thirteen renditions of Norman – paintings, mosaics, statues – are scattered throughout the bank and Mr. Carney decided the one in his office could go. “I lent it to George Osborne,” Mr. Carney says, referring to the anti-Brexit former chancellor of the exchequer, who lured Mr. Carney to Britain from the Bank of Canada, where he became the Bank of England’s first non-British governor in 2013. (Mr. Carney acquired British and Irish passports).
The office overlooks a grassy courtyard that used to be a churchyard. In addition to a beehive (and, yes, a statue of Mr. Norman), it is home to four mulberry trees. They, too, are historically significant. Britain’s first banknotes, issued at the end of the 17th century, were made from dark paper sheets derived from the trees’ bark. Deep below the courtyard lie 400,000 bars of gold worth more than £200-billion. It is the second-biggest stash of gold in the world after the New York Federal Reserve’s, and off limits to the public.
Mr. Carney arrived at a time that might now be described as “Peak Central Bank.” Never before had central bankers had so much independence and power. They could shape entire financial and economic systems by setting interest rates, flooding markets with liquidity through the mass purchases of sovereign and corporate bonds (known as quantitative easing), and regulating banks and insurers to make sure that their collapse would not jeopardize savers or cost taxpayers billions. (Royal Bank of Scotland, briefly the world’s biggest bank, was rescued by the British government in the 2008 financial crisis and remains 62-per-cent owned by the state).
Central banks, at least in the Western world, have gained their independence only in recent decades. For a long time, many of them were the lapdogs of finance ministers. If the politicians wanted to juice the economy ahead of an election, they would arrange a cozy little fireside chat with the central bank governor and suggest an interest rate cut, even if it risked triggering inflation. Resistance was futile.
The Bank of England didn’t get final say on interest rates until 1997, when Tony Blair’s new Labour government decided politicians should not be trusted with monetary policy; the government would stick with fiscal policy – spending and taxation. But the bank lost commercial bank supervision powers. Those powers – and then some – were restored after the 2008 financial crisis, when the British banking system all but collapsed and the government went into bailout mode.
Mr. Carney admits he wasn’t tested in the same way that Mr. King or Mario Draghi, who was president of the European Central Bank until this past October, were tested. The former steered the British financial system out of trouble after the failure of Lehman Brothers in 2008. The latter led the ECB through a euro debt crisis in 2011 and 2012 that came close to shredding the common currency and seeing Grexit – the departure of Greece from the euro zone.
Still, Mr. Carney says he was challenged to the hilt: “When I showed up then, I viewed the role as reforming the institution [the Bank of England], reforming the financial sector and getting the economy growing, so fixing three things, if you will.”
He made considerable progress in all three areas. “He made no strategic errors,” says economist Charles Goodhart, professor emeritus at the London School of Economics and a former member of the Bank of England’s MPC. He says Mr. Carney performed especially well on the financial stability side in the wake of the financial crisis, shoring up the financial system.
The Bank of England, through the financial policy committee, invented tough new stress tests for the British banks to ensure they could endure a Lehman-style meltdown without going belly up. To make them more resilient, they now hold three-and-a-half times more capital than they did before the financial crisis, giving them a comfortable shock-absorbing cushion, and hold £1-trillion in liquid assets, more than four times the precrisis level. “We have a financial sector that is 10 times GDP [gross domestic product]. Canada’s is two times GDP, so we can’t afford another crisis with the knock-on effects to U.K. GDP that we saw before,” Mr. Carney says.
Pushing the Bank of England into the 21st century, culturally speaking, is a work in progress. The bank was ridden with management silos, overly bureaucratic, stuffed with powerless committees and, of course, dominated by white men. Mr. Carney cut the number of internal committees from 78 to 24 and installed an Amazon-inspired decision-making system, which insisted on short memos written in concise English that everyone had to read before meetings. “We make decisions like Amazon now. We ask Alexa, ‘Should we raise interest rates today?’ ” Mr. Carney jokes.
Diversity targets were put in place to overcome the embarrassing lack of women and ethnic minorities at every level. The proportion of women in senior levels has almost doubled to 32 per cent (the goal is 35 per cent by 2020). But the number of senior employees in the BAME category – Black, Asian, minority ethnic – is still short of the target of 13 per cent by 2022.
A few very senior women left during Mr. Carney’s era, including U.S. economist Kristin Forbes, now of MIT’s Sloan School of Management, who was a rare rebel voice on the Bank of England’s MPC. Minouche Shafik, who was deputy governor, reportedly did not get along with Mr. Carney and was touted in the media as a contender to replace him. (In December, the government appointed Bank of England alumnus Andrew Bailey, CEO of the Financial Conduct Authority, Britain’s financial services regulator, as his replacement). Neither woman would talk to The Globe and Mail.
The views on Mr. Carney’s role as chairman of the nine-member MPC – charged with keeping consumer price inflation at two per cent – are somewhat mixed. Under his leadership, the MPC pursued a cautious, steady-as-she-goes strategy.
When Mr. Carney arrived in 2013, the bank’s base rate was at 0.5 per cent. In August, 2016, two months after the Brexit referendum, the MPC dropped the rate to a record low of 0.25 per cent to help calm the markets. Since then, the committee has raised the rate twice, taking it to 0.75 per cent. That’s it. In six and a half years under Mr. Carney’s leadership, there have been only three rate moves – one down, two up.
Mr. Goodhart of the London School of Economics finds no faults in the MPC’s track record, given the relatively low GDP growth and moderate inflation. But other observers think the MPC kept rates too low for too long. When rates are at rock bottom, the central bank effectively loses its main recession-fighting tool because it has run out of room to reduce them further.
The Brexit referendum in 2016 split Britons into Leavers and Remainers. Contrary to predictions among Remainers that the British economy would fall off a cliff after a vote to leave – “Project Fear,” as it was dubbed – it held up fairly well. There has been only one quarter of negative growth since mid-2016 (although the expansion is slow: The European Commission expects British GDP to grow 1.3 per cent this year).
When growth is positive and unemployment is falling, pressure generally mounts on central bankers to raise interest rates. Mr. Carney had said in 2013 that rates would stay at historic lows at least until unemployment dipped below 7 per cent, which it did in 2014. The jobless rate in Britain has plummeted since the crisis years and is now at a 44-year low of 3.8 per cent, yet interest rates have barely moved up.
Mr. Sentance, who was one of the most hawkish members of the MPC during his era, says Mr. Carney seemed to lack the will to raise rates even though the economic data suggested he could start bringing them back to normal – that is, non-crisis – levels. “I think he was frightened,” he says. “In 2013 and 2014, he had a great opportunity [to raise rates]. Then Brexit came along and he was very influenced by the political agenda."
David Blanchflower, the British-American economist at New Hampshire’s Dartmouth College, who served on the MPC from 2006 to 2009, says the committee was guilty of “groupthink” – the lack of dissenting voices – under Mr. Carney’s leadership, although he admits those voices have always been rarities at the MPC. “Everyone on the committee [except Mr. Carney] has been irrelevant,” he says. “He should have been encouraging more debate.”
Brexit emerged as a lightning rod when Mr. Carney testified before parliamentarians in March, 2016, three months before the referendum. Leavers accused the governor and the bank of exaggerating the economic downside. A month before the vote, Mr. Carney warned that Brexit “could possibly include a technical recession.”
Mr. Carney has kept up his warnings. In late 2018, the bank predicted that a disorderly departure from the European Union could shave 8 per cent from GDP. This past September, however, Mr. Carney told a Parliamentary committee that the bank expected the economy to shrink by just 5.5 per cent in a worst-case, no-deal, Brexit crash-out scenario.
All the bank’s Brexit scenarios have been dismissed as scaremongering by the Leavers, who say they leave no doubt that Mr. Carney is a liberal Remainer. Arch Brexiteer Jacob Rees-Mogg, government leader in the House of Commons, called for Mr. Carney’s head in late 2018, telling the BBC that he was a “second-tier Canadian politician.” Even Mr. Carney’s predecessor, Mr. King, couldn’t resist taking an indirect swipe. “Before the referendum, official economic projections intended to scare the country into voting Remain didn’t succeed,” Mr. King wrote in a Bloomberg opinion piece. “It saddens me to see the Bank of England unnecessarily drawn into this project.”
In the three and a half years since the referendum, the economy did not go into recession, nor did job growth stall. Of course, Brexit has yet to happen. Grim economic news may lie ahead when Britain leaves the EU at the end of January, as Prime Minister Boris Johnson has promised, or fails to strike a trade and services deal with the EU by his imposed deadline of December, 2020.
Mr. Carney absolutely denies he was straying into the political realm. He argues that it was the bank’s duty to present its views on the risks surrounding the potential forms of Brexit -- hard, soft or somewhere in between. Parliament, he notes, demanded the bank’s views and they were duly delivered. He was doing his job.
“I’ve been a central bank governor in crisis times for almost 13 years,” he says. “I’ve been through the global financial crisis, I’ve been through several euro crises, I have been through the Scottish and Brexit referenda. And what you have to do in all these situations is stick to your remit and make the right call, and sometimes that makes for uncomfortable identification of risk, and people often don’t thank you for the actions taken that often mitigate those risks."
Mr. Carney was referring to the Bank of England’s pledge that it would provide ample liquidity, if needed, to help overcome the shock of the Brexit vote. The crisis management worked. Sterling fell the day after the referendum, but there was no financial panic.
But he also notes that Britain’s economy did, in fact, substantially underperform the G7 countries after the referendum. Investment shrank, the pound fell, growth slowed and inflation climbed – all this even before Britain had hit the road.
After January, a Brexit-induced recession is not out of the question. The Bank of England’s Brexit warnings may yet come to pass.
I ask Mr. Carney if he will admit to being a Remainer now that his term is up. “I have no opinion on it,” he says.
Mr. Carney does have opinions, and lots of them, on climate change. Those opinions have helped make him a British and international superstar. But they have led to further accusations that he jeopardized his political neutrality.
Mr. Carney thinks that unless banks and insurers – the financial system in general – prepare for climate change, they could be in for a nasty shock, financially speaking. Climate change has been something close to an obsession for him since he arrived at the Bank of England in 2013.
He stepped up his climate efforts in 2015, when he was chairman of the Financial Stability Board (FSB), the Group of 20 body that monitors the global financial system’s health. His first significant climate speech was delivered to the Lloyd’s of London insurance market that September. It was called Breaking The Tragedy On The Horizon – Climate Change And Financial Stability.
Mr. Carney identified several big climate risks. One was physical risk, such as catastrophic flooding, in which paying claims might destroy an insurer.
Another was transition risk: the risks involved in shifting to a low- or zero-carbon economy, and the spending needed to do it. Largely eliminating fossil fuels could turn oil companies into investment pariahs and leave them with stranded assets – oil, gas and coal reserves left undeveloped, and therefore worthless, as temperatures rise. Fossil fuel producers and their bankers could also face lawsuits for misleading investors over the risk of climate change.
The result was the Task Force on Climate-Related Financial Disclosures (TCFD), which was launched by Mr. Carney and Mr. Bloomberg. Mr. Carney has effectively turned his TCFD appearances around the world into a second career. In an interview at the Madrid climate summit in early December, he said the disclosures that have followed TCFD guidelines have “succeeded beyond our expectations.”
Today, about 80 per cent of the biggest 1,100 global companies disclose climate-related risks in line with TCFD reporting guidelines, and three-quarters of major investors, such as pension funds, are using TCFD data to help make investment decisions. “Firms that align their business models with the transition to net zero [emissions] will be rewarded handsomely," Mr. Carney said during a Madrid appearance. “Those that fail to adapt will cease to exist."
Mr. Carney’s climate crusade earned him rock star status -- but also bolstered the view among his critics that he was a political animal. Mr. Yates, the former Bank of England economist, and Mr. Sentance, the former MPC member, applaud Mr. Carney for identifying the potential dangers of rapid climate change. But both are puzzled as to why he focused on it so intently, given that the financial system at any one time might face more immediate risks, such as the US$1.2-trillion leveraged loan market, which some analysts call a “ticking time bomb."
“He talked about climate change, women’s rights, equal opportunity, inequality, socially responsible capitalism," Mr. Yates says. "When you stack all of those things up together, it discredits his position as governor. I think he has done quite a lot of damage to the institution because of it. … Speeches should be tedious and technocratic and you shouldn’t be able to figure out what party he would vote for. With Carney, it oozes from him all the time he speaks.”
The two men think that Mr. Carney, in part, used Brexit and climate change to raise his profile to prepare for a political career. At his level, that might centre on taking a shot at replacing Justin Trudeau as Liberal Leader. Remember, he is moving back to Ottawa.
A Liberal Party insider, who spoke on condition that his name not be revealed, says the party has approached Mr. Carney a couple of times to test his interest. One approach was made after Michael Ignatieff resigned as Liberal leader in 2011. “We needed a leader who wanted to return this party to relevancy,” he says. “Mark is unquestionably someone who is interested in public life. He’s extraordinarily skilled and experienced."
But the insider says Mr. Carney would now have tough potential competition from deputy prime minister Chrystia Freeland, among others, and his long absence from Canada might hurt him in the way it hurt Mr. Ignatieff. “He’ll have a price to pay if he wants to go for it,” the insider says, “like giving talks in church basements and Tim Hortons in the middle of winter.”
At the end of the interview, I ask Mr. Carney again what he might do in Canada. He rattles off a string of issues that are close to his heart and are “particularly critical in Canada,” including globalization, equality, the environment and the transition to a new, cleaner economy, and stresses that he wants to return to Canada “because I’m Canadian.”
It’s a non-answer that carries a big hint. There’s really only one job in Canada that can give him the power to shape Canada’s future.
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