"Absolutely decisive action was needed to start a new chapter”. So said Bank of England Deputy Governor Paul Tucker of Barclays chief executive Bob Diamond’s resignation in the wake of the Libor scandal.
Unfortunately, that same sentiment should torpedo Tucker’s hopes of landing the top job in Threadneedle Street.
Tucker may not have done anything wrong but — as MPs gleefully tear into the Bank’s top officials in a frenetic end to the Parliamentary session — the problem has now become more one of perception.
Tucker described the scandal as a “cesspit” but he is being badly hurt by his chumminess with Britain’s top bankers. This is a tragedy for Tucker, who on paper at least is easily the best candidate for the job. The deputy Governor saw his role as building bridges with the Square Mile, but the mateyness revealed in the latest bunch of emails — as well as the Bank’s professed ignorance of the entire affair until just a few weeks ago — jars with the decisive action across the Atlantic in 2008 from the Federal Reserve Bank of New York. The Bank claims the Fed showed it no evidence of wrongdoing, and rightly argues that it was not a regulator in any case. But underlying all this is the unanswered question: as the Old Lady prepares to take on unpredecented powers, can we trust Tucker to keep a firm eye on bankers like his “absolute brick” Diamond? Andrew Tyrie, chairman of the Treasury Select Committee, clearly has doubts given the Bank’s failure to spot the trouble. “This doesn’t look good, Mr Tucker.” Quite.
Aside from the awkward email banter, the row also brings Tucker’s communication skills into question. Tucker claims Diamond’s note of their infamous conversion about Libor — “it did not always need to be the case that we appeared as high as we have recently” — gives the wrong impression.
But Tucker’s interpretation — “are you ensuring [your Treasury] don’t march you over the cliff inadvertently by giving signals that you need to pay up for funds?” — is more indirect and nuanced but seems to add up to the same thing. Diamond didn’t interpret their chat as an instruction, but subordinate Jerry del Missier clearly believed he was acting under orders from Threadneedle Street. These mixed messages have cost quite a few people their careers.
Tucker — at the Bank since 1989 — is hardly the new broom that now seems appropriate when Sir Mervyn King’s reign comes to an end. He’s also going to be short of political allies. The Chancellor’s unsubstantiated claims over the involvement of Labour ministers in the Libor scandal may have demeaned the office, but nonetheless Tucker’s firm denials of such interference are embarrassing for George Osborne and will have earned him few friends in Number 11 Downing Street.
The shame of it is that until recently Tucker looked so well-suited to the Governor’s chair. Alongside getting the stagnant British economy moving again, the Bank’s biggest challenge over the next ten years is the Herculean task of making the banks safe.
Tucker, who chairs the G20 Financial Stability Board’s efforts on safely resolving large and complex banks, is at the heart of the nitty-gritty of putting in place a new macro-prudential regime sufficient to ensure that they can’t tip the economy into the abyss again.
Losing this expertise — as Tucker will surely leave the Bank if he fails to claim the Governorship — will be a big blow. But the current mood calls for an outsider, which puts Lord (Gus) O’Donnell firmly in the driving seat. An apolitical Whitehall operator with a strong economics background, he is untainted by any failure to spot what was going on under the Bank’s nose. And if he’s serious about getting into central banking, why not Goldman Sachs’ Jim O’Neill for a deputy Governor who knows his way around the Square Mile?
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This scandal isn’t going to blow away any time soon as more banks get dragged into the net — and there are probably more emails waiting to see the light of day bearing testament to the chumminess and inactivity of the old guard. The Old Lady needs fresh blood — and fast.
