September 3, 2018 / 11:19 AM / 22 days ago

Breakingviews - Britain is making a mess of replacing Mark Carney

LONDON (Reuters Breakingviews) - Familiarity can breed respect in financial markets. Take the case of Bank of England Governor Mark Carney, who may be staying at the central bank longer than previously agreed. Continuity would be a comfort to investors facing a host of Brexit-related uncertainties. But it would send a bad signal in the long run.

Bank of England Governor, Mark Carney, speaks during the central bank's quarterly Inflation Report press conference in London, Britain August 2, 2018. REUTERS/Daniel Leal-Oliva

The Treasury and the BoE are in discussions about Carney remaining beyond the end of June 2019, in what would be the second extension to his tenure, the BBC reported on Monday. When starting the job in July 2013, the former Goldman Sachs banker said he would leave after five years. In October 2016, he agreed to stay for an extra 12 months, ensuring he would be around when Britain leaves the European Union, scheduled for March 29, 2019.

Brexit also appears to be the justification for the latest rethink. The UK government was supposed to kick-start the process of finding Carney’s replacement over the summer. But more candidates for the job might emerge once the outlines of Brexit are clearer. For example, prospective governors will want to know whether the central bank will be free to draw up its own financial regulations, or continue to be bound by European Union rules after Britain leaves the bloc.

Investors may be reassured if Carney stays a bit longer. Though his past U-turns on policy guidance have irked some, he has a proven record of coping well with a crisis. But these advantages fail to offset the big drawbacks of extending Carney’s tenure. By deferring the decision about his replacement, the government would effectively be saying it isn’t sure whether the obvious contenders for the job are good enough. These include Andrew Bailey, the head of Britain’s Financial Conduct Authority, as well as two BoE deputy governors, Jon Cunliffe and Ben Broadbent.

The pool of candidates may be no larger if Carney delays his departure. And there’s little point waiting for a candidate who might be put off by potential adversity. After all, the next decade could bring anything from another financial crisis to a global recession triggered by full-blown trade wars. Postponing the decision about Carney’s replacement would be the worst choice.

Breakingviews

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