We are in severe danger of having a reduced Bank of England governor

The Bank of England governor carries authority and objectivity, we are in danger of losing that, writes Chris Blackhurst

Bailey’s tenure at the Financial Conduct Authority was torrid (Reuters)

In our society, few jobs command as much respect as governor of the Bank of England. It’s a post that carries authority and objectivity, above the unseemly fray of politics, something removed and untouchable.

I’ve been to the Bank on several occasions and had lunch or coffee with the governor, and from the moment you walk through the grand entrance, inside those thick walls, the outside world, the hurly-burly of the City and the markets just beyond, falls away. It’s a place of caution and serious thought.

When Mervyn King was in charge I remember thinking it could feel too distant – that global finance was in crisis, yet in the Bank all appeared calm. King though, to his credit, was the one who was able to warn of creating a “moral hazard” by jumping in to rescue banks that had behaved recklessly.

So, when Andrew Bailey was appointed governor he ticked all the boxes. He possessed the intellect, he’d been at the Bank before, he knew how to smooth the Treasury and Downing Street, he was comfortable in international settings, greeting his opposite numbers and officials at the EU, World Bank and IMF.

All the boxes, bar one. When you apply or you’re head-hunted for a vacancy there usually comes a point you’re asked if there is anything in your past that may cause a problem? If the recruiter has done their homework they should know what it is. On paper, in person, you’re what they’re looking for, but there is an issue and we should thoroughly examine it, just to see whether it could come back to bite you.

That, I suspect, did not occur in Bailey’s case. Or, if it did, then the government has some awkward explaining to do.

For four years, from 2016 to being made governor in 2020, Bailey was chief executive of the Financial Conduct Authority. Chief executive note, not chairman.

Previously, he was deputy governor and chief cashier at the Bank. It’s those four years when he was out of Threadneedle Street, and down at the FCA’s offices at Canary Wharf, that threaten to undermine his governorship and ought to have put a big 16-point, in bold, question-mark against his suitability.

We’ve now seen, writ large, the reasons why. One day he is attending a fractious session of the Commons Treasury Select Committee and arguing about his role as a regulator supervising the collapse of London Capital & Finance. That’s immediately followed by an unedifying row with Dame Elizabeth Gloster, the former Appeal Court judge who wrote the report on the LCF’s demise. Another, he is presenting the case for the UK and EU to work together, to determine future rules for financial services and remedy a glaring omission from the recent Brexit trade agreement.

The latter is to be expected of the Bank of England governor, it goes with the role; the former is not.

Miller has come out guns blazing again after his select committee appearance. As this government knows all too well, Miller is not one to go away quietly

LCF went down in 2019, owing £236m and leaving 11,000 investors out of pocket. It turned out that Bailey tried to have his name removed from Gloster’s highly critical study of the affair. He told the committee he was “angry” that Gloster suggested he had made legal representations to stop personal responsibility for FCA failings being attributed to him by name. Gloster hit back, saying she had to “reject” and “disagree” with his explanation.

Bailey told MPs he did not personally have knowledge of the problems at LCF until it went into administration and blamed the FCA’s failure to act quickly enough on structural weaknesses in the organisation. He claimed that Gloster herself had said “the machine was broken”. But Gloster pointed out those were Bailey’s own words: “I think he may have inadvertently suggested that it was I who referred to the FCA as a ‘broken machine’.”

The difficulty for Bailey and the government is that LCF is not a one-off. It is one of several such episodes where his FCA is accused of incompetence. Others include the aftermath of the discovery of fraud at HBOS in Reading; poor regulation around online crowd-funders and the demise of Lendy; and the fall of Neil Woodford’s main investment fund.

After it was announced that Bailey was the new governor, the anti-Brexit and individual financial rights campaigner, Gina Miller, published a dossier, Asleep at the Wheel, about his tenure at the FCA. Miller said that under Bailey, the watchdog was “characterised by a toxic cocktail of negligence, incompetence and indifference to the needs of ordinary depositors, investors and pensioners. On his watch, tens of thousands of Britons have lost money – in many cases losing their life savings which has devastated their lives, families and business”.

Bailey’s period at the FCA was torrid. He undoubtedly inherited an ineffective institution and financial debacles occurred, as they always do. It may well have been the case as well that precisely those qualities that marked Bailey down as a suitable candidate for governor made him unsuited to being the day-to-day boss of such a consumer-facing body.

Miller has come out guns blazing again after his select committee appearance. As this government knows all too well, Miller is not one to go away quietly. Likewise, they may believe LCF and the like do not matter, and this administration has a habit of dismissing marks on people’s CVs.

But the Bank of England governor does not belong on the personal finance pages or in quarrelling with MPs and judges over investor scandals. We are in severe danger of having a reduced governor. At a time when Bailey should be boosting the economy post-pandemic and positioning the City post-Brexit, that is especially unfortunate.