Incoming Bank of England Governor Mark Carney will get an early chance to overhaul management of the U.K. central bank after Paul Tucker said he will step down as deputy governor.
Beaten by the Canadian to the governorship, Tucker said yesterday he will end three decades in policy making later this year and work in U.S academia. Fellow deputy Charlie Bean is also scheduled to leave in the next year and other officials are nearing the ends of their terms. Carney has already left the Bank of Canada and formally starts work in London on July 1.
The departures will hand Chancellor of the Exchequer George Osborne and Carney the opportunity to appoint colleagues who share a taste for activist monetary policies such as so-called forward guidance, said former BOE economists now in the private sector. The Treasury said the procedure for choosing Tucker’s replacement will be announced in due course.
“My guess is that Carney and Osborne may take the opportunity to ship in one of their own,” said Shamik Dhar, a onetime BOE economist and now head of investment strategy at Aviva Investors in London. “Presumably the new governor will want reliable allies at the highest levels.”
Tucker was thwarted in his ambition to lead the central bank when Osborne opted in November for a foreigner as governor for the first time since it was founded in the 17th century.
The BOE’s Monetary Policy Committee is composed of nine officials, of which five come from within the central bank and four are so-called external members working part-time. Each has an equal vote on interest rates and quantitative easing. As deputy governor for financial stability, Tucker also sat on the Financial Policy Committee and the board of the Prudential Regulation Authority, which were created as part of Osborne’s decision to restore banking regulation to the BOE.
The departure leaves scope for a shift in the balance of arguments on the need to increase government bond purchases. Tucker has been one of six officials resisting a push by outgoing governor Mervyn King and two other colleagues since February to increase quantitative easing. His vote this month will be released in minutes of the decision due on June 19.
Tucker first joined the MPC in June 2002, and has attended 133 meetings. He was outvoted seven times on interest rates, and in six of those occasions preferred higher rates than the rest of the panel. He has always sided with the majority on quantitative easing.
“In choosing Mark Carney as the next Bank of England governor, Chancellor Osborne revealed a preference for ‘monetary activists,’” said Simon Hayes, an economist at Barclays Plc in London and a former U.K. central bank official. “It is therefore quite possible that Mr. Tucker’s replacement will be more inclined to support a monetary expansion.”
Carney has said central banks should help deliver “escape velocity” for their economies, fanning speculation he will be more aggressive than King in trying to boost the economy. He has promoted the use of Federal Reserve-style forward guidance in which a central bank sets thresholds to be met before interest rates are raised, something current policy makers have shirked from deploying so far.
Within a year of his appointment at the Bank of Canada in 2008, Carney reorganized the bank by creating the financial stability department and improving coordination between economic, banking and financial market researchers to promote stable financial institutions. He also aimed to encourage research on current policy issues and place more emphasis on long-term research.
“Carney is expected to take a ‘new broom’ approach to the BOE and now he has the opportunity to choose a key right-hand man,” said Simon Wells, chief U.K. economist at HSBC Holdings Plc and formerly at the BOE.
The new governor is already recruiting advisers. Bank of Canada spokesman Jeremy Harrison will join Carney in London from the end of July for a two-year stint in the BOE’s communications department.
Markets Director Paul Fisher and external member Ben Broadbent also complete their terms in 2014, and just over a year later, David Miles and Ian McCafferty will see the end of their terms. Such officials can be reappointed.
With the departure of King, Tucker and Bean in the coming year, “a lot of institutional memory, experience and expertise are walking out the door,” said Richard Barwell, an economist at Royal Bank of Scotland Group Plc and another former BOE economist. “Getting premier league replacements for Bean and Tucker is critical.”
Possible internal successors to Tucker include Andrew Haldane, the central bank’s executive director for financial stability, and Fisher.
Tucker served four governors and will leave before the end of his five-year term, which was due to conclude in March. His candidacy for the governorship, which made him the bookmakers’ choice to replace King, was hampered when he was dragged into the Libor scandal.
He joined the BOE after studying math and philosophy at Cambridge University. His time at the institution has taken him from a stint in Hong Kong on assignment in the 1980s to becoming markets director and then his last role overseeing financial stability.
“I am very proud that, through the bank and the wider central banking community, I have been able to make a contribution to monetary and financial stability,” Tucker, 55, said in a statement. “I will continue to do so in the coming months. I am looking forward to supporting Mark Carney as he arrives.”
Tucker won’t be the first European central banker to move on to American academia on leaving policy making.
In 2011, Axel Weber moved from the Bundesbank presidency to the University of Chicago Booth School of Business and European Central Bank Executive Board member Lorenzo Bini Smaghi joined Harvard University’s Weatherhead Center for International Affairs. Former Bank of Cyprus President Athanasios Orphanides is a senior lecturer at MIT Sloan School of Management.
In a 1997 recruitment brochure for the bank, a younger, smiling, Tucker featured in a profile showing prospective graduates how their careers might flourish there. At the time, he was head of the monetary assessment and strategy division after already serving as principal private secretary to Governor Robin Leigh-Pemberton.
He joined the bank “because I was attracted to public policy work in the financial sphere with a strong analytical element,” Tucker wrote. “That’s how it turned out.”
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