There be feudin’ at the BoE

February 28, 2012

The once-good relationship between Bank of England Governor Mervyn King and his most likely successor, Deputy Governor Paul Tucker, is coming  under increasing strain, according to a new book by former Daily Telegraph journalist Dan Conaghan.  It  alleges   King’s management style and and alleged disdain for the financial markets is to blame.

While the Bank of England’s Monetary Policy Committee remains reasonably collegiate, on other matters King more than lives up to the description from former chancellor Alistair Darling that he is ‘incredibly stubborn’, says Conaghan, who now worksas an asset manager.

“The governor can be particularly dogmatic,” he told Reuters. “One of the key things … is the attitude to the capital markets. One of my sources described Sir

Mervyn’s attitude as one of disdain. I’ve heard that repeatedly. Paul is much more pragmatic.”

One tangible upshot of this came at the launch of the Bank’s quantitative easing programme in March 2009, which Conaghan said led to an upsurge in failed trades on the British government bond market, until the central bank found a mechanism to lend back some of the gilts it had bought.

More broadly, Conaghan’s book The Bank: Inside the Bank of England describes something approaching a feud growing out of a philosophical split between King – who champions a purist, economics-driven approach – and Tucker, who is closer to financial market participants.

“It is widely acknowledged within the Bank’s upper echelons and elsewhere that the relationship between King and Paul Tucker … has deteriorated over the past few years. One very senior figure at the Bank describes it as being, at times, ‘a battle-ground,’ where the battles over policy, direction and structure are common. Another senior official at the Treasury concedes that they ‘do not get on, to put it mildly’.”

Extracts such as this have prompted an icy response from the Bank of England, which says the book is filled with “many inaccuracies … and a lack of insight (which) undermine the claim that the book is based on interviews with senior members of staff”.

Conaghan says he spent three years researching the book, and spoke on multiple occasions to the sources of the most critical allegations. “I’m incredibly relaxed about refuting the claim that the book is some sort of cuttings job.”

He has also sent a copy of the book to each of the MPs on the House of Commons Treasury Committee, who have taken a close interest in King’s management style and the Bank of England’s handling of the financial crisis.

Perhaps they will care to question further when King and Tucker make a joint appearance before them at a regular hearing on Wednesday.

 

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