The news that Mark Carney will remain as Governor of the Bank of England for a further six months had been heavily pre-briefed and so was not the surprise it might have been. The advantages in terms of stability have been clearly argued by the Chancellor and the TSC Chair among others. However, some pro Brexit MPs will be less positive and the final year of the Governor’s tenure is may be a bumpy ride.
It’s also worth flagging the risk, without getting into possible scenarios, that the Brexit outcome might be even less clear in six months’ time than it is now. At which point, it would presumably be difficult to extend fora third time.
What I mainly want to focus on, however, is the potential impact of the news on both the Bank and the FCA over the next year. Understandably, with Andrew Bailey (the FCA’s CEO) a leading contender to be the next Governor, both organisations have been waiting for the puffs of white smoke to go up one way or the other. A six months’ postponement is more likely to fuel than quell this anticipation.
But the Bank and the FCA, despite both being regulators and with much in common, have quite individual cultures and the impact on each is likely to be correspondingly different.
The Bank is a much more hierarchical organisation, and an extended farewell for any Governor is likely to slow down decision making and lead to fewer forward looking commitments (financial or otherwise) beyond what is necessary or routine. There may be the same number of announcements and speeches, but fewer of them will tell us much about how the Bank’s long term views are developing (other than on Brexit), or have real central bank resources and heft behind them.
Conversely, the FCA is much more federal in nature, reflecting its broader scope and more devolved decision making authority. Andrew Bailey arrived in July 2016 for a five year term, so by January 2020 he will have only 18 months left. As a result, the swirl of rumour around his successor will start to grow irrespective of whether he becomes the next Governor. Previous changes of CEO have been accompanied by considerable change at ExCo level, with some accompanying instability.
The nature of the FCA's remit too – c.56,000 regulated firms and a huge breadth of responsibilities – means the pace and frequency of decision making is much faster anyway, and there is a risk this velocity will increase further.
In a different world, next April might have seen the Bank and FCA starting to look forward and move UK regulation beyond its current post crisis phase. As it is, the Bank is likely to have become more Brexit-focused and short term in its thinking, and the FCA may be trying to broaden its focus yet further, while still looking for quick results.
Either way, the content of Bank/PRA and FCA speeches and publications over the next year or so will repay even closer analysis than usual.
Mark Carney will stay on as Bank of England governor until the end of January 2020, providing continuity during Brexit, which Philip Hammond warned might be “turbulent”. Announcing the extension of the term in Parliament, the UK chancellor on Tuesday made it clear he was worried that the months around Brexit could be difficult for the UK economy.