OTTAWA (Reuters) - The Bank of Canada’s pick to fill a vacancy on its rate-setting council could offer clues on the priorities of the well-respected central bank as it gets ready to replace Governor Mark Carney, named last month as the next chief of the Bank of England.
As it seeks to replace outgoing deputy governor Jean Boivin, the bank’s hiring committee will weigh the advantages of academic candidates or those with an inside view of central bank operations against those who may have a deeper knowledge of financial markets, an asset Carney brought and which some say propelled him to central banking stardom.
Most Bank of Canada watchers say private sector banking experience is not crucial for a deputy governor job, one of four positions ranking just below the governor and the senior deputy governor. But they acknowledge that the bank may value that skill more highly than it did in the pre-crisis days, when academic credentials were highly prized.
“Having financial market experience won’t be and shouldn’t be a negative when it comes to considering potential candidates for deputy governor,” said Finn Poschmann, vice-president of research at the C.D. Howe Institute, a think tank.
Boivin stepped down in October to take a senior position at the finance ministry. The bank is accepting applications to replace him until January 5.
Unlike the situation in other central banks, where markets quickly peg officials as hawks or doves, depending on their message, the Bank of Canada takes pride in sticking to a single script in public remarks so views from a new appointee may have less weight than in Britain or the United States.
But the appointment of a new deputy may give insight into the bank’s agenda for the coming years; whether it boosts its hands-on financial markets expertise or arms itself with a theoretical framework to deal with asset price bubbles and debt.
Two insiders considered strong contenders, Larry Schembri and David Wolf, illustrate the dilemma. Both are advisers to the governing council, but the former hails from academia and the latter is a former market strategist at Banc of America Securities-Merrill Lynch Canada.
Carney himself worked at Goldman Sachs before joining Canada’s public sector.
Several others from inside and outside the bank have also been named by their peers as possible candidates.
One of many factors the bank must consider is that Carney’s successor may want a final say on who is hired, or may have different priorities, which could mean delaying the decision until a new governor is chosen sometime next year.
Carney leaves on June 1 and starts his new job a month later. He will be the first non-British governor at the 300-year-old Bank of England.
Senior Deputy Governor Tiff Macklem is widely seen as the obvious first choice for Bank of Canada governor. The bank’s board of directors meets this week to discuss the recruitment process.
All senior policymakers must speak both official languages and although the bank provides language training as needed, it may feel pressured to replace the French-speaking Boivin with another francophone to not upset the balance.
Of the favored candidates for the deputy position, Wolf worked for eight years at a Canadian investment dealer before joining Merrill Lynch in 2005. Schembri followed a more traditional career path, joining the central bank as a researcher in 1997 and after successive promotions became adviser in 2010.
Conventional wisdom would see Boivin, known for his research on interest rates and inflation, replaced by someone with similar credentials.
“They’ve usually been fairly strong with respect to theoreticians and with his departure those ranks have been thinning out and I would assume they would want to fill in that gap,” said Paul Ferley, assistant chief economist at Royal Bank of Canada.
But Carney’s legacy may mean the bank breaks that mould. His 13 years at Goldman Sachs and insider’s knowledge of banks and complex financial products are often cited as reasons for his success during the world financial crisis, when Canada recovered relatively quickly from a comparatively mild recession.
Carney took an interest in Wolf when the Merrill Lynch economist warned about a possible Canadian housing bubble, and appointed him as adviser in 2009. The gamble raised eyebrows as Wolf was seen as inexperienced in policy matters, but insiders say he has proven himself.
“David Wolf is actually a very solid candidate, bringing the private sector experience that could contrast with the other members of the governing council,” said Charles St-Arnaud, economist at Nomura Securities in New York who worked at the Bank of Canada from 2002 to 2005.
But Carney clearly values Schembri highly too, naming him adviser on the bank’s contribution to the Financial Stability Board, the global task force for financial reform headed by Carney himself.
Like all advisers, Wolf and Schembri have input into monetary policy, appearing before the governing council to give a recommendation on interest rates before the final decision.
The last two people to be promoted to deputy governor — Boivin and Agathe Cote — served as advisers first.
Reporting by Louise Egan; Editing by Janet Guttsman, Jeffrey Hodgson and Andrea Ricci