Reserve Bank people

There is a lot of personnel change going on at the upper levels of the Reserve Bank. It has been an ongoing process since Adrian Orr took office as Governor only just over 3.5 years ago. It seems to be the way with new public sector CEOs – clear out the previous lot, and then churn until you get the tolerable set of loyalists – perhaps compounded in Orr’s case by a reputation over the years for not tolerating dissent and really only welcoming true believers (or those who can simulate the appearance and live by the lies/rhetoric/spin). He seems to be in the midst of a second clear out….in under four years. Compare, for example, the senior management group in the first Orr Annual Report (2018) with the group Orr will have gathered around him by early next year (when recently announced departures take effect). There isn’t much overlap, and not one of the changes – I’ve seen – has involved people moving on to bigger and better jobs.

A couple of months ago it was announced that the Deputy Governor, Geoff Bascand, was leaving. Bascand is probably in his early 60s but there was no hint that he was retiring. I guess he was old enough that, if Orr gets a second term, he was never going to be Governor, and perhaps some mix of a bit more golf, some consulting, some directorships (and no more involvement in the trying Reserve Bank superannuation scheme) had its appeal, but on paper it looks like quite a loss to the Bank. Of the internal people on the Monetary Policy Committee (and it is an internals-dominated committee) he seems to be the most capable – thoughtful, fluent, and with the intellectual capability to churn out, say, a somewhat-respectable speech. Did he come to find working for Orr all a bit too much?

Who knows. But then yesterday there was a second curious departure from the upper ranks of the Bank, and the Monetary Policy Committee. And that brought to mind the Oscar Wilde line from The Importance of Being Earnest”, in whic Lady Bracknell remarks, β€œβ€˜To lose one parent, Mr Worthing, may be regarded as a misfortune; to lose both looks like carelessness.”

The unexplained departure of one senior monetary policymaker might not be very interesting, but when two (of four) leave in quick succession, it looks like more of a story, and probably not one reflecting entirely well on the Governor.

The latest departure is Yuong Ha, the Bank’s Chief Economist, who has been in the role for less than three years (an Orr appointee) and is only about 45. The Bank’s press release gives no hint of what he will be doing next, suggesting that he does not know.

It was a curious appointment in the first place. Ha may have been a competent section manager, but had never been seen as one of the Bank’s thinkers or intellectual leaders (and surely the Chief Economist should normally have been where the MPC looked for such leadership). It was always possible that he could have surprised and stepped up in the role, but sadly it wasn’t to be. There were a succession of (often individually small) mis-speaks – my favourite was when he suggested in public that things like the LSAP couldn’t offer much, about 10 days before the Governor/MPC went all-in on their new and very expensive toy, claiming a great deal of effect. And in almost three years, he had not been allowed to do a single on-the-record speech, through some of the most difficult and turbulent times for monetary policy in quite some time. If Orr has now engineered his departure, it is probably for the good of the institution. But it doesn’t speak well of Orr’s judgement in having appointed him in the first place – especially as the vacancy arose only after Orr engineered the departure (by demotion, and then resignation) of Ha’s predecessor, John McDermott.

Of course, in the public sector one can’t just buy-out people you no longer want around, suggesting that some further restructuring has been used to achieve the outcome. McDermott was got rid of by creating a new rank between McDermott and the Governor, and (presumably) telling McDermott he wasn’t going to get the more senior one (the one that carried the title he already had). The Assistant Governor role is soon to be vacant – Christian Hawkesby having been appointed as Deputy Governor – so perhaps Orr is going to collapse the two jobs into one again, with Ha being given to understand he wouldn’t get the more elevated (direct report) position. We’ll see soon enough I guess (more adverts to follow after the raft of Assistant Governor positions advertised a month or two back).

But whichever way Orr goes, there are now two vacancies on the Monetary Policy Committee (and, which we’ll come to shortly, two of the three external members have terms which expire early next year). This is, supposedly, a very powerful and important statutory body, and you might hope for a bit more media and parliamentary scrutiny (there almost certainly would be if more than half the committee was potentially changing in the US or the UK). It isn’t as if there are outstanding candidates for the two internal positions – whether outside economists or internal people who buy their research or other intellectual leadership cry out to be appointed. And of course, anyone appointed has to be willing to work with and for Orr, independent thought discouraged. One possibility is that Orr (and the Minister) appoint the head of the financial markets department and the new chief economist, but who (really capable) will want the chief economist job is an open question.

For a serious, open, and accountable central bank, the first wave of external members of the MPC have been something of an embarrassment (for a Governor who wanted to keep control, and a Minister happy to go along, all has probably been fine). Not one of the three has given even a single on-the-record speech, and I’m pretty sure that among the three of them there has been only a single media interview. There is no transparency, no accountability, and little reason to suppose these three have added any value. One (probably the least qualifed for the role) was, so the papers revealed, appointed primarily for diversity reasons. The other two – Bob Buckle and Peter Harris – have terms that expire early next year. Buckle is the only one of the three with a focus on macroeconomics, but recall that Orr, Robertson and the Board chair got together to ban from the Committee anyone likely (now or in future) to be doing any active work or research on macro/monetary issue – one of the more ludicrous (if revealing) aspects of the entire RB reform process. Unless, the Minister – perhaps encouraged by Treasury – has had a rethink, presumably the incumbents will be reappointed. The title looks good on the CV, and the fees make reasonable retirement pocket money. But taxpayers and citizens deserve more and better. At present, not one of the remaining members of the MPC commands – and demands – respect as a key thought leader in a powerful independent government agency.

But it isn’t just the MPC and management where change is afoot. Parliament has recently passed amending legislation that means that from the middle of next year the current Bank board – a largely toothless beast, notionally charged with monitoring and holding management to account – will be replaced by a real Board, in which will be vested all the powers given to the Bank, other than those explicitly assigned to the Monetary Policy Committee. On paper, it is a step forward, and will finally put in end to the 30 years in which the Governor alone held huge discretionary policymaking powers. And the Bank wields huge powers, as policymaking agency in many areas of financial regulation (as well as implementing agency). The new Board – despite its primary focus being organisational and financial regulatory – will also be charged with the appointment of the Governor and the MPC members (subject only to ministerial veto).

Even the government and Parliament recognised that – on paper at least – they were handing a lot of power to these people, and in the new law there is explicit provision that the Minister of Finance can’t just appoint his mates, but must consult with other political parties in Parliament before making an appointment. They don’t get a veto, but the consultation requirement is presumably supposed to act as something of a dragging anchor.

Some weeks ago, with no fanfare, the first appointments were announced (or appeared well down a Bank web page). The Governor and these first three appointees are acting as a “transitional board” to oversee preparations for the new regime, but all three have been apparently appointed by the Governor-General, and presumably have been consulted on. Unfortunately, the three appointees are at least as underwhelming as the government’s MPC appointments.

The current Board chair, Neil Quigley (Vice-Chancellor of Waikato University) is staying on as chair of the new Board and the two other appointees are both professional director types, each with a long list of (present and past) directorships but no obvious expertise in the matters they are to be responsible for. There are, we are told, five more appointments to be made, but it is hardly confidence-inspiring (unless your model is one in which everything changes but everything stays the same, with all power in Orr’s hands). It doesn’t seem like good practice – and must be quite unusual now – to keep on a chair who has already done almost a decade on the Board, especially when that Board had a reputation for doing little but providing cover for the Governor.

But the bigger issue is that no one involved – management or Board – has any reputation for excellence as practitioner or thinker on these important areas of policy the Board will be responsible for. Take management. Orr and his new deputy (and head of financial stability) are both economists by trade. Nothing wrong with that of course, but to the extent they have wider experience it is solely in funds management (Orr as head of NZSF, Hawkesby a few years at a local funds manager). Neither has any real background in the core business of banking, or in regulation. And neither have any of the new Board members announced to date. Those with long memories might think of Quigley as something of an exception, in that earlier in his career he did some interesting (mostly historical) work on banking regulation, but…..that was probably 25 years ago, and in recent decades he has largely been an enterprising university manager, skilled at playing the PBRF game etc. It could have been a good opportunity to have found some really good people, including perhaps one from overseas, who could have added gravitas and standing to the new institution. A former top banker perhaps? A leading thinker on financial regulation? Instead, so far, we have a typical group of the sort of people who end up on all manner of government boards, supposedly playing a key role in setting an important area of policy, of appointing future key monetary policy makers, all with a management team that is underwhelming at best, and evidently subject to frequent churn. One can only wonder if any of the other political parties pushed back at all.

I write more about the Reserve Bank because it is the organisation (and policy areas) I know best. I don’t suppose the Bank is much worse than most other New Zealand government agencies, and perhaps it is unrealistic to expect it to for long ever be much better than the rest, but what a lost opportunity the expensive and longrunning reform process of recent years has been. The government could have laid the foundations for an excellent and highly-regarded institution. Instead, it seems only interested in the appearance of change, the shadow not the substance.