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Great Expectations for Carney at Bank of England


Carney's appointment may be a very welcome development. He seems to have exactly the kind of skills that that are in need to help Britain extricate itself from a difficult economic and fiscal situation.

Secondly, Carney brings with him a reputation for being not only smart but flexible and pragmatic. He is the kind of person, says one former colleague, whose interest is in what policy will achieve the desired results. In 2010, the Bank of Canada was the first G-7 member to raise interest rates after the financial crisis, but Carney warned shortly afterward that "no particular path for monetary policy is preordained" and that the central bank's future decisions would depend on domestic and global events.

Similarly, while he has been a big advocate of banking reforms, including more significant capital requirements envisaged under Basel III, Carney isn't a big fan of the so-called Volcker Rule requiring banks to no longer invest in hedge funds or engage in proprietary trading. On the other hand, despite his stint at Goldman Sachs, Carney has a firm view of where financial institutions belong in the hierarchy: They must move on from their "self-appointed role as the apex of economic activity to once again be the servant(s) of the real economy," he told an audience in Montreal in 2009.

Which brings me to my third point: Carney calls it as he sees it, and rejects glib conclusions. If companies are hoarding cash, he apparently doesn't think it's only because they are afraid of what the future holds. As he said last summer, it's more likely to be because they can't find anywhere interesting or profitable to invest it – in which case it's time for them to hand it back to shareholders and keep the wealth circulating. Similarly, if banks aren't lending, he has argued, it's more likely to be because of a lack of demand than because the financial institutions are fearful or crippled by regulations.

His willingness to speak his mind has won him at least one powerful opponent – Jamie Dimon, CEO of JPMorgan Chase (NYSE:JPM). Back in 2010, Carney referred disdainfully to the "jaded attitudes" Dimon displayed in dismissing the financial crisis as the kind of thing that happens every five to seven years when explaining events to his daughter. A year later, in the autumn of 2011, the two men clashed face to face in Washington, with Dimon blowing up at Carney and arguing that the latter's push for banking reforms – and higher capital requirements – discriminate against giant US institutions such as JPMorgan. Reportedly, Dimon referred to that as "anti-American" and "cockamamie nonsense" dreamed up by individuals with no real understanding of today's financial markets. It took Goldman Sachs CEO Lloyd Blankfein to smooth down the ruffled feathers.

The confrontation with Dimon shows that Carney – seen as mild-mannered but incisive – won't back down when he believes he is right, and raises some interesting questions about how he'll interact with Dimon in his new role – London is a major headquarters for JPMorgan Chase and other big financial institutions. But it should give British Prime Minister David Cameron confidence to know that his new financial honcho is unlikely to be seen as too much of an insider in the City of London.

As part of his relocation, Carney has said he'll be applying for British citizenship (his wife is British by birth and his children are dual nationals), but that he'll only be staying in the post for five years rather than the traditional eight – enough time, it is hoped, to tackle the turnaround of the much larger British economy. Of all the central bankers in the world today, Carney has one of the strongest reputations, but by reaching beyond the country's borders to tap a "colonial" for the job, Cameron and his government are still taking a risk. (The last Canadian-born colonial to play a major role in Britain's government was press baron Lord Beaverbrook, during World War II.)

The task that lies ahead is a big and complex one, which is more difficult than anything Carney has confronted to date. Because of his reputation and track record, expectations are high – and so are the stakes.

Editor's Note: This article by Suzanne McGee originally appeared on The Fiscal Times.

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