Thinking about senior central bank appointments

The Bank of England lost a Deputy Governor the other day.  The Hon. Charlotte Hogg had been chief operating officer of the Bank of England for the last few years, and was recently appointed by the Chancellor of the Exchequer as Deputy Governor (with responsibility for banking and markets).    She was apparently quite highly-regarded, as well as being a scion of the British establishment (both her father and mother are peers in their own right, her mother was head of John Major’s Downing St policy unit, and her father, grandfather, and great-grandfather were all viscounts and Cabinet ministers).

Senior appointees to Bank of England roles (both top executive positions and the non-executive appointees to the decisionmaking committees on monetary policy and regulatory matters) are subject to confirmation hearings before a parliamentary select committee.     The select committee doesn’t get to decide whether the appointees get the job –  so it isn’t like the US system –  but they can ask hard questions, and can write and publish reports on the suitability of a candidate.  The House of Commons is large enough that there are plenty of MPs who either never will be ministers, or have already had a term as a minister,  That seems to make them  –  even those from the governing party – more willing to ask hard questions than one might expect.

In the course of her confirmation hearings, it became apparent that Hogg had not declared and disclosed to the Bank of England that her brother was head of group strategy for Barclays –  holding a senior position (including involvement in regulatory matters) in one of the largest UK banks, and one for which the Bank of England has supervisory responsibility.    Worse still, earlier in the hearings she suggested to MPs that she had in fact done so.

It is a strange story.  At one point in this episode, Hogg had declared that she was totally confident she had complied with all the Bank’s codes of conduct because “I wrote them”.   Even if so, how it never occurred to her to ensure she disclosed her brother’s position –  erring on the safe side if nothing else –  is a bit of a puzzle.  I’m also quite surprised that it wasn’t known and recognised within the Bank anyway –  they are hands-on supervisors, Barclays is a big and important bank, and the brother’s name would be familiar to anyone with a modicum of knowledge of modern British political history.

The Treasury select committee published a fairly forthrightly critical report, and shortly before it was published Hogg announced that she will resign.  The Guardian has is a nice summary of the story.

There is no suggestion of any substantive inappropriate conduct (whether information being passed, or behaviour influenced) beyond the non-disclosure itself.  But the resignation is the sort of standard we should expect from holders of high, and powerful, public offices.  As Hogg herself put it

“We as public servants should not merely meet but exceed the standards we expect of others.”

Regulatory agencies require punctilious adherence to the rules by those they regulate.  They weaken their own moral position if their own people aren’t held to at least those sorts of standards.

But as I read and thought about the Hogg story, it got me thinking again about our own Reserve Bank, and holders of senior positions there.

The Governor of the Reserve Bank exercises an enormous amount of power –  far more, personally, albeit in a smaller economy and financial system –  than the Governor of the Bank of England.  In that institution, most of the policymaking powers are spread across committees in which the Governor has only a single vote, and where most of the members are either executives not appointed by him or are non-executives.  And yet there is nothing like the confirmation hearings process here.  Most of the appointment power doesn’t even rest with the Minister of Finance –  who can be grilled in Parliament – but with the barely-visible Board members, who themselves face no parliamentary scrutiny.  Like the Bank of England, our Reserve Bank has a couple of deputy governors –  statutory positions.   Holders of those roles don’t have formal voting power –  unlike at the Bank of England –  but there is also no parliamentary scrutiny.  (There were suggestions that a former Deputy Governor was allowed to keep share options in an institution whose New Zealand subsidiary he was responsible for regulating.  If so,  external scrutiny at the time of appointment might have challenged that.)

Compared to the British system, in particular, our system is riddled with democratic deficits:  too much power in one person’s hands, the appointment of that person largely in the hands of non-elected appointees, and no parliamentary scrutiny on appointment of any of these statutory positions (Governor, Board, deputy governors).

In the aftermath of the Charlotte Hogg affair there were curious suggestions of unequal treatment.  Former Chancellor of the Exchequer, George Osborne, is quoted as saying

“Would she have gone if she had been an older man whose sister worked at a bank? I wonder,”

One can only respond “well, I certainly hope so”.

But again, contrast the position at the Bank of England with that at the Reserve Bank of New Zealand.  Hogg was the third female Deputy Governor of the Bank of England.    On the Bank’s statutory decision-making committees, two of the nine members of the Monetary Policy Committee are women, as are two of the members of the Prudential Regulatory Committe, and one member of the Financial Stability Committee. (Hogg serves on all three.)

The Reserve Bank of New Zealand has never had a female Governor or Deputy Governor.  Looking at the current organisation chart, two senior management roles are held by women, but they are both third tier internal corporate positions.    There has never been a more senior woman in the Bank, and thus none of the core statutory policy areas (monetary policy, financial regulation and stability, financial markets) has ever been headed by a woman.  There is no woman on the Governing Committee, and unless things have changed markedly in the last two years, there aren’t (m)any women managers in those core areas either. In fact, it is only about five or six years since the most senior woman in the core policy areas was made redundant.  There are plenty of able women further down the organisation, and I still recall –  35 years on –  the fearsome grilling I got from one smart woman in an interview when I applied to join the Bank, but none in the core senior positions.    (There are women on the Bank’s Board, but it of course has no role in policymaking.)

Quite why this is so is a bit of a mystery.  I doubt it is a result of direct or conscious discrimination –  although decades ago, women had to retire from the career staff if they got married.   And while macroeconomics and markets tend to be areas more men gravitate to than women, Janet Yellen chairs the Fed, and the Bank of England has managed three female deputy governors in the last 15 years.   And even across the Tasman, two of three Assistant Governors in the core policy areas  of the Reserve Bank of Australia are female.

But, whatever explains the patterns up till now, it must surely become a bit of an issue sometimes soon; perhaps one for the Minister and the Board in considering future appointments, and perhaps too for MPs and lobby groups wondering quite how the Reserve Bank appears to have remained so male-dominated for so long.

If one runs through the standard sorts of list of people who might be possibilities to become Governor next March, there are no female names  (Bascand, Orr, Carr, Sherwin, Archer and so on).  And if one restricts the field to that sort of background, I don’t think it is just because people have inadvertently overlooked the female names.   There are no women I’m aware of in New Zealand who hold, or have held, senior-level macro or banking regulatory roles –  eg one could look around the Reserve Bank or the Treasury, or the more prominent of the market economists and commentators and find none.

But perhaps it is time to cast the net wider?  That might be sensible anyway.  It seems likely that the next Governor will lead and preside over some potentially quite significant governance changes, and in many ways the organisation needs revitalising and opening up.  One could make a pretty compelling case for the appointment of a person with strong change management capabilities, rather than a more traditional economist.  Character and judgement would still always be vitally important, but they might be less important than the specific technical expertise.  In this case, after all, we know that there will be not just a new Governor but also at least one, and possibly two, new deputy governors –  and in any top team, there is a need for a complementary set of skills, not just clones of each other.    I’m not that familiar with many senior business figures but, for example, one of our major commercial banks is already, apparently very ably, led by a woman.

I could add that, to the extent that this surprising under-representation of women does concern those in power, my proposal to reform Reserve Bank governance to establish a couple of statutory decisionmaking committees (a Monetary Policy Committee and a Prudential Policy Committee) would also more quickly up more roles to which the Minister of Finance could appoint able women.  There shouldn’t be any real shortage of suitable candidates to be considered.

On the topic of gubernatorial appointments, readers might recall that when the Minister of Finance last month deferred the appointment of a new Governor until well after the election, giving deputy governor, Grant Spencer, a six month term as acting Governor, I raised questions as to whether this appointment was strictly lawfully permissible.  As I stressed then, I had no particular concerns about Grant himself, and had actually been suggesting for some time a variant of the same solution –  giving Graeme Wheeler a short extension, if he had been willing to accept it.  But the Act doesn’t seem to be written in a way that allows a new person to be appointed, with no Policy Targets Agreement, for such a short period.

Because there were no clear answers from the government, and no pro-active release of the relevant papers, I asked for copies of the relevant papers from (a) the Minister, (b) the Treasury, and (c) the Reserve Bank Board.  I didn’t really envisage it as a burdensome request, and although I was sure they would withhold any formal legal advice they had, I was interested in the advice the various agencies had provided to the Minister and Cabinet on the point.

So far, it looks a lot like typical bureaucratic delay and obstruction.  The Minister of Finance didn’t respond until well after the 20 working days (and was thus in breach of the Act).  When he finally did respond it was to say that he was giving himself another month to respond

“the extension is required because your request necessitates a search through a large quantity of information and consultations are needed before a decision can be made on your request”

Frankly, it would be surprising if the Minister of Finance held very many documents at all on this issue, but time will tell.   A week earlier I had had the same postponement, and same justification, from the Treasury – and again it would be a little surprising (especially as when they asked, I made clear that I wasn’t after working level email exchanges on the issue).  Curiously, the Reserve Bank Board itself –  the people primarily responsible for appointing a Governor –  didn’t claim to have lots of documents they needed to search, only that delay was needed

because consultations necessary to make a decision on the request are such that a proper response to the request cannot reasonably be made within the original time limit.

It isn’t an urgent issue, and in substance I don’t really have much of a problem with the Spencer appointment, but it is hardly the sort of open government, or commitment to the spirit of the Official Information  Act one might wistfully, foolishly, hope for.

3 thoughts on “Thinking about senior central bank appointments

  1. Our RB governors simply are too powerful. They have become unaccountable for their poor decisions.

    Don Brash have consistently run hawkish interest rates and that have led to the beginnings of the decimation of our productive industries.

    Alan Bollard pushed interest rates to a ridiculous 9% OCR which led to 12% To 15% interest rates for commercial lending. This ended with the complete destruction of the building sector including the 61 finance companies that funded developments with a loss of $6 billion of investor funds.

    Wheeler had 4 aggressive interest rate rises off the back of an earthquake recovery and seasonal commodity milk prices which ended up slowing down the Christchurch rebuild and decimating a whole bunch of builders in Christchurch.

    Now Wheeler has also naively put in a 60% LVR regime which has encourage monopoly behaviour amongst our main banks raking in their monopoly profits.

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  2. With Grant Robertson talking about including a employment factor into the RB governors mandate is finally a step in the right direction. Labour Party is starting to make sense. This is an important differentiation from National. They finally have workers up front taken into consideration. Workers have been ignored for too long. Allan Bollards ridiculous and blind push to keep inflation within a targeted range at the expense of the entire economy and decimated jobs. It would have been far better to have pushed forward with higher KiwiSaver contributions to contain inflation which would then have led to an increased depth of capital funding of our productive industries being able to access capital to grow rather than being completely obliterated by higher and higher interest rates.

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