Goodbye Mervyn, Hello Mark

As we wave goodbye to Mervyn King, former Governor of the Bank of England (ready for him to take up his seat in the House of Lords so that he can sit back and now relax), his successor, Mark Carney hasn’t even had the time to let the seat go cold at the Old Lady of Threadneedle Street. Even before he had been whisked into office Mark Carney was being beaten and battered, cajoled and begged on his day-off (do Governors of Central Banks get days off?) to start injecting money into the British economy in a different way and finance an investment bank in order to aid lending to small businesses. Now, the question is whether or not Mark Carney’s stint at the head of the Bank of England will end up being known as ‘Carney carnage’ or ‘carefree Carney’? It’s very much doubtful that the answer will be the latter.

Today, Mark Carney steps into Mervyn King’s shoes at the Bank of England. But, it already looks like he will be in for a tough time. Although, let’s face it if you wanted an easy job, you wouldn’t go for governor of a central bank, now would you? There are easier jobs around, aren’t there? Like Public Relations Organiser of some Syrian dictator to try to improve his image and create some spin. Not a nice job. If we are going to be realistic, you wouldn’t choose Governor of the Bank of England if you wanted to sit back and do nothing. Before he took up office, Carney was already being asked to do X and Y, with a dash of this and that at the same time thrown in for good measure. King hadn’t even handed over the Old Lady and he was already being asked to back the British Business Bank last night at a function. Furthermore, The British Chamber of Commerce wants to see more than just the present £375 billion that has been injected into the British economy via Quantitative Easing. That will be discussed on Thursday this week. Will the new Carney broom sweep clean?

The Chancellor of the Exchequer, George Osborne, already wants the Bank of England’s interest-rate setting committee to provide the possibility of encouraging lenders to lend more. The inflation-rate target is 2%. At the moment it stands at 2.7% (May 2013), which is a vast improvement on 2011 peaks of over 5% in inflation rate. Inflation is supposed to fall over the next couple of years, which suggests that there may be the possibility of increasing UK Quantitative Easing.

Inflation UK

Inflation UK

The British Chamber of Commerce wants to see the amount of money injected via QE increased since they consider that there have been strong cuts to lending both to private individuals and more importantly to small-businesses, causing worry for the stability of economic growth in the future. Banks such as RBS and Lloyds have reduced the amounts of money available for loans, primarily because of substantial losses being made.

There are some, such as the New Economics Foundation, who believe that the Bank of England should directly by-pass the banking sector and instead of providing Quantitative Easing to put into the banks’ deposits, the BoE should use that money by directly investing in the housing sector, creating 60, 000 homes in the UK. That would mean directly buying bonds that back energy efficiency, infrastructure and the home-building sector in the UK. Whether the new Governor of the Bank of England is prepared to hand out that money and get the BoE officials to don protective headgear is another question for the moment. The think-tanks hope so. Some believe that by directly investing in projects like this, the Bank of England will be able to manage the growth of the UK economy and at the same time control inflation.

Quantitative Easing as it stands at the present time is not providing the necessary boost to the economy according to those same think-tanks. More strategically-aligned investment in certain sectors would (they say) develop strength where it is most needed. But, the question is clearly raised as the new role of a central bank if this were to be undertaken. If the central bank becomes the lender and the investor in sectors of economic activity in such a way, then it is doing more than just by-passing the banks in the country. It is also doing away with and therefore becoming the banker of the people rather than the bank of all banks.

New statistics just published today show that the UK banking sector is now behind that of France, Brazil and Russian. It ranks 10th in the world. The banker’s Top 1, 000 World Banks show that only HSBC is now ranked in the top ten banks in the world. The Industrial and Commercial Bank of China was the top lending bank in the world, although for how long that may be so remains another question, given their liquidity-deposit issues over the past few days and weeks. Profits for this Chinese bank soared by 14% last year. Combined profits of all UK banks stood at $12.9 billion (or $19.6 billion) for 2012. That is a drastic fall from 2008, when profits were at £56 billion ($85.2 billion). HSBC and Barclays were still making profits, but banks such as the Royal Bank of Scotland made a loss of £5.2 billion (2012) and that was the fourth largest loss of any bank in the world, according to the report. Total profits of all banks in the world now stand at levels that are equal to the level of the pre-financial crisis period. However, there has been a redistribution of those profits around the world. Losses are being made in the UK in particular right now.

Carney: BoE

Carney: BoE

Mark Carney is dubbed the ‘George Clooney of Finance’. But, it is certain that the economy will be asking for more than just ‘What else?’ this time from the new Governor of the Bank of England. It is certain that whatever happens, it is doubtful if Mark carney will do anything radical before August, when figures will be published about the state of the British economy. While there is no doubt about a new direction at the Bank of England, little is known at the moment about what Carney thinks bout QE. Will he or won’t he? Carney is awaited as King leaves as the new Messiah of the banking sector. But, god-like worship rarely pays off, does it.



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