The subtext of the new Bank Governor's appointment

The message wasn’t subtle last week when the Bank of Canada board of directors chose Finance bureaucrat Mark Carney to replace Governor David Dodge when his term ends this winter. For the second consecutive time, a public servant was chosen ahead of the internal roster of candidates for the top job at the Bank of Canada.

Seven years ago, it might have been clearcut to the outside world that someone with Mr. Dodge’s experience as a former Deputy Minister of Finance under Don Mazankowski and Paul Martin was the perfect choice. If anyone inside the Bank of Canada had wanted the job, no one could have denied that Mr. Dodge had both the world view and the confidence of the various political parties; making him the obvious choice, if only after the fact. With Mr. Carney’s nomination, perhaps there’s a different message.

At 42, Mr. Carney is certainly young for the post (Mr. Dodge is in his mid-60s). Matt Barrett might have been 44 years of age when he was first appointed Chairman and CEO of Bank of Montreal in 1990, but he’d tell you that only happened as a result of Bill Mullholland driving out an entire generation of senior bankers during his tenure as CEO. Only “the kids” were left to take over the reins. If Mr. Barrett was a kid at 44, what does that make our new Bank Governor?

In Mr. Carney’s case, his background is quite different than Mr. Dodge’s. Mr. Carney’s 13 years at Goldman Sachs serves as an interesting tutelage, although the relevance of a life in equity underwriting and advisory services to managing Canada’s interest rate policy is more than a bit murky. He first arrived in Ottawa to spend just over a year as a Deputy Governor of the Bank between 2003 and 2004, before moving to Finance as a Senior Assoc. DM. At Finance, any senior public servant is going to be exposed to the intricacies of steering (at least attempting to steer) the Canadian economy and controlling the rest of the federal bureaucracy, as Finance is wont to do. In Mr. Carney’s case, his higher profile duties included managing Canada’s activities at the G-7 and G-20 meetings. The Sherpa, as the role is known.

The odds of a young person making their way from Fort Smith, Northwest Territories to an undergard slot at Harvard, and then on to Oxford, with Goldman as his only professional experience are remarkably small. Not one percentile. Perhaps, 0.00001% Obviously, this guy is special.

David Dodge must have known that when he recruited him to the post as one of his Deputies at the Bank. In a brilliant display of career management, only someone with the influence and relationships of Mr. Dodge could manage to rotate Mr. Carney through Finance (after only a 15 months at the BofC) to round him out before Dodge’s 7 year BofC term ended in 2008.

Although Mr. Carney was seen to be a “Finance” candidate in some quarters, his initial time at the Bank undercuts that label. The more suitable label can only be “change agent” in my mind. With barely four years on the ground in Ottawa, he certainly isn’t anyone’s inside candidate. The Board of the Bank seems to have had full rein in making their choice, without a hint of pressure or influence from the Finance Minister or the PMO. And with half of the Bank’s Board members being appointments of former Prime Minister Martin, and the other half getting the nod from Prime Minister Harper, it’s no small feat that they could agree on taking a bold step. That Mr. Carney is thought “to be a Grit” makes his appointment that much more pristine, given the minority government situation.

Given the summer we’ve had in the credit and financial markets, the timing couldn’t be better. With OFSI pointing fingers at DBRS, yet not taking responsibility for their own role in the asset backed commerical paper (“ABCP”) fiasco, it is the perfect time for a fresh look at how our regulatory system is structured. With a new Bank Governor, who is easily young enough to complete two 7 year terms, who better than Mark Carney to bring some sense to an antiquated system?

Over the past hundred years, our financial system has changed dramatically. Yet the oversight bodies are stuck inside their historic fences. What’s OFSI’s role with the proliferation of financial players, not all of whom are regulated at the national level? Is the Bank of Canada merely here to issue the currency and set the bank rate? In the absence of a national securities regulator, who has the role to head off things like the $45 billion ABCP disaster (see post “Where’s the Bank of Canada on Coventree stumble?“, August 14-07)? Currently, no one seemed to have been “point” on it.

And the consequences are entirely made-in-Canada.

That’s just one obvious example of the types of issues Mark Carney will undoubtedly be thinking about when he assumes the mantle in February. It’ll take some deft stick-handling to bring monumental changes to the way the Bank and OFSI function, but for a guy who made it from Fort Smith to Harvard to Goldman to the Bank of Canada’s top job in less than 20 years, it should be a snap.

We’re rooting for you.

MRM