Will Carney's Big Finance bet turn Britain into Hong Kong?
Bank of England governor wants to put the City at the heart of Britain’s growth story
WHEN Mark Carney was unveiled as the new governor of the Bank of England, most financiers could hardly believe their luck, says Iain Dey in The Sunday Times. They were convinced he would revoke the hardline policies of the 'Capital Taliban' that had dominated Threadneedle Street under Sir Mervyn King.
Carney has taken his time, but last week "he suddenly turned into the man the City always hoped he would be". By unveiling "a significant easing" in the terms on which the BoE provides liquidity facilities to banks, he sent "a powerful signal" that he sees his role as helping to foster financial services, not just regulating them, notes the FT.
Perhaps the biggest difference is "the change in tone". Carney's strong defence of the City as a force for economic good, both nationally and globally, delighted the Square Mile. After a five-year war of attrition, it seems peace has finally broken out.
Carney's speech went well beyond the message that "banker bashing is over", says Allister Heath in City AM. He sought to position the City at the heart Britain's future prosperity, arguing there should be no limits to the size of the financial sector, "provided it is well-capitalised, properly managed and governed by strict resolution mechanisms to protect taxpayers in the event of failure".
Even more radically, he believes that by 2050, UK bank assets could exceed nine times GDP (up from four times GDP today). That may ring some alarm bells, but "this is not a return to the Gordon Brown years", characterised by incompetent supervision and a safety net of taxpayer bailouts. "It's a pro-growth, tough but fair approach" of the kind we have seen in Singapore, "where the financial sector's contribution is hugely valued but closely supervised".
"The contrast with Mervyn King's pulpit preachings could hardly have been clearer," says The Observer. But even assuming that the most robust system of regulation will prevent banks going off the rails - hardly a given - is it really in Britain's interests to increase the size of the finance sector?
Past precedents aren't great: "the dramatic expansion of financial services over the past 30 years has coincided with miserable returns for investors, an exploding trade deficit and a credit drought in large parts of the country".
Moreover, research by the Bank for International Settlements suggests that "after the financial sector has reached a certain size, it starts to become a drag on growth".
I'm sceptical too, says Martin Wolf in the FT. Although the finance industry is a crucial source of income and jobs, "it also generates instability and rising incoming inequality". At the very least "the UK needs to understand the implications of becoming a greater Hong Kong".
The governor has defined a new vision. "I admire its bravura, but doubt its wisdom." ·