Tom Burgis Closed Central bankers centre-stage

Mark Carney, the incoming governor of the Bank of England, was grilled by MPs and his ECB counterpart Mario Draghi faced awkward questions. By Tom Burgis, Ben Fenton and Lina Saigol in London with contributions from FT correspondents. All times are GMT.

Good morning

In a few minutes, at 9.45, Mark Carney will take his place in the Thatcher Room in parliament to explain to the members of the Treasury Committee how he intends to run the Bank of England

Here’s what the FT’s economics editor Chris Giles had to say in his piece today outlining 5 key questions Carney must answer:

While it is inconceivable for the new governor to shout “turn on the printing presses and rev up the helicopters”, the purpose of a pre-appointment hearing is to hear his thinking, not to be told of a magic solution. Evasiveness will be utterly unacceptable.

Lord (Adair) Turner,

who one fancies would rather like to be sitting where Carney is about to be, made his own views crystal clear in an interview with the FT published on Wednesday

For the first time in a long time, there are whispers in some quarters that the Bank of England might do something other than keep rates and QE unchanged at today’s MPC meeting. Most expect no change, though. Here’s ABN Amro:

We expect the MPC to keep the Bank Rate and the size of its asset purchase programme unchanged following today’s monetary policy meeting. The latest MPC minutes revealed that members feel increasingly comfortable with their wait-and-see approach. This is unlikely to have changed in the past month, as recent data suggest that the economy has started 2013 on a positive note. Furthermore, inflation has remained at relatively high levels, and is expected to come down only gradually. Finally, the MPC’s focus to stimulate the economy seems to have shifted from the asset purchase programme towards the funding for lending scheme. With evidence building that the latter is starting to bear fruit – the latest credit conditions survey for instance showed that banks increased credit availability to the private sector, while this trend is likely to continue in the coming months – there is a sense that the MPC will see this as a more fruitful avenue to help the economy than further gilt purchases.

Carney will be grateful, naturally, for a bit of early advice too from the man who gave him the job.
The UK Chancellor, George Osborne said on Wednesday:

George Osborne let slip his frustration with the Bank of England on Wednesday, calling for looser monetary policy to boost economic recovery.

In an extremely unusual move on the day before the BoE’s monetary policy committee announces the outcome of its monthly meeting, the chancellor put pressure on the bank to take action.

Mr Osborne said decisive moves by the government on the deficit “means that . . . monetary policy action by the BoE can and should continue to support the economy”.

Like any good rock star, Mark Carney’s show is late getting started. The live feed from Westminster is emitting nothing but a high-pitched beep and showing only a multi-coloured screen, rather like those bits between programmes on 1980s television programmes

News from the front – the Daily Telegraph’s economics editor Phil Aldrick tweets:

And Fergal O’Brien, BofE editor for Bloomberg News, thinks he might have the answer as to why we are delayed:

What everyone wants to know is whether Carney will differ from Sir Mervyn King in his stance on stimulating the economy and targeting inflation. There has been much ink spilt since Carney was lured from Canada on the perceived differences in approach between the incoming steward of the Old Lady and the outgoing one.

But Marc Ostwald, strategist at Monument Securities, is having none of it.

To be very frank, this is perhaps one of the most misinformed media and market debates that I have ever had the misfortune to be witness to – and one can sadly only assume that there are some who object to a “foreigner” being installed as the governor of the Bank of England, but lack the courage to express their xenophobia explicitly. A more considered analysis of the differences in views expressed by Sir Mervyn King and Mr Carney would note that King merely placed a slightly different emphasis in his recent keynote speech, but he was in fact making the same point: i.e. the flexible approach to the inflation target that the MPC has adopted over the past 5 years of the current crisis has been the right one (leaving aside the rather ugly spectre of self congratulation), and while he came down in favour of retaining the CPI target, he also suggested that a more explicit flexibility within the BoE’s mandate would be appropriate. Anyone who has either been monitoring BoC policy since Carney took over the helm of the BoC from the formidable David Dodge, or bothered to look at the history of BoC policy under Mr Carney would not conclude that Mr Carney was a dove on inflation, and one assumes that he will be keen to dispel this notion, especially as the UK MPC over the same year period can only described as having largely ignored its inflation mandate (notwithstanding the flexibility therein).

Live stream now working on Parliament TV. Still no sign of the rock star.

The MPs of the Treasury committee are taking their seats, with Andrew Tyrie, the Conservative chair, in the middle. Carney’s seat awaits

There was a bit of Tube chaos in London this morning. Would the new BofE governor follow the lead of Prince Charles and take to the Underground?

And we’re off

Tyrie explains that he’ll start with monetary policy then come on to financial oversight

This delay means that a written statement released by Mark Carney to coincide with his appearance before MPs is actually being reported before he starts answering questions.
We will put some of the headline points up.

Markets are struggling for momentum with many stock barometers meandering just below recent multiyear highs:

Here’s what the FT’s global markets commentator Jamie Chisholm has to report:

Moves across asset classes are mixed, suggesting traders are reluctant to adopt bold strategies as they look to upcoming sessions jam-packed with potential drivers, including company profit reports, macroeconomic data and monetary musings.

Tyrie asks Carney why, after initially not wanting the governor’s job, he decided that he did, after the deadline for applications had passed.

Carney explains that a) he was already governor of the Bank of Canada and b) he wasn’t too keen to uproot his young family.

What changed? At the G20 meeting in Mexico in November, George Osborne suggested to him that the appointment could be for just five years, rather than eight. That fits nicely with his daughters’ education. And Carney was told that Charlie Bean, deputy governor, had agreed to stay on.

Might not some of the other candidates be put out by the special arrangements that were put in place to allow Carney to apply, Tyrie wonders. Carney concedes the point.

The five main challenges for the Bank, according to Carney’s written statement:

Emoticon Enhance its forecasting – using the Stockton review as a basis.
Emoticon Prepare and exit from unconventional monetary policy.
Emoticon Improve the understanding and management of the interaction between its monetary policy and macroprudential instruments (sic).
Emoticon Support the Government in its engagement with the Eurozone and international economic problems
Emoticon Complement price stability with retaining confidence in the Pound.

Chris Giles, FT economics editor, has been reading the incoming governor’s written statement:

MPs move to the thorny matter of Carney’s pay package. His healthy housing allowance, in particular, has raised some hackles, in part because of the pay freeze that is in place for the rest of the BoE’s staff. Carney, who will make £800,000 a year, says his pay and pension package is equivalent to Sir Mervyn’s.

Carney brushes off questions about whether he has political ambitions at home.

“If I had political ambitions, I would have pursued them in Canada.”

The full text of Carney’s written answers to the Treasury select committee is here.

Here’s what’s happening elsewhere in Europe:

Monte dei Paschi di Siena, the country’s third biggest lender, said Wednesday losses linked to three complex derivative trades between 2006-2009 totalled E730m. Giulio Tremonti, the former Italian economy minister, has already said it was “stupefying” that he failed to discover the loss at Monte dei Paschi given he was regulating Italy’s banking system.

In Ireland an attempt to ease the country’s debt burden was in disarray on Thursday after the government was forced to pass emergency legislation to liquidate Anglo Irish Bank, the failed lender, without having secured a key debt swap deal with the European Central Bank.

In Spain, renewed concerns over the economic health of the eurozone has forced the Spanish Treasury to pay more to borrow at a triple-bond auction. The Spanish Treasury sold Euros4.6bn in medium and long-term debt, ahead of the E4.5bn it had targeted.

Claire Jones, economics reporter for the FT, has been perusing what Carney has written. Here is one early thought from her:

Carney still open to scrapping inflation targeting if growth continues to disappoint. Here’s the relevant section from the document:

“The benefits of any regime change would have to be weighed carefully not only against the potential risks but also against the effectiveness of other unconventional monetary policy measures under the proven, flexible inflation-targeting framework. Although the bar for change to any flexible inflation-targeting framework should be very high, it seems to me important that the framework for monetary policy—rightly set by Governments and not by central banks—is reviewed and debated periodically.

“That process, which in Canada is undertaken every five years, has yielded valuable insights on how we can best operate our framework in a way that maximises the welfare of Canadian citizens. Similar insights may be possible in the UK given both the length of time since the inception of the inflation-targeting framework and the current extraordinary economic circumstances, which could not have been envisaged at its inception.”

Carney is asked about its thoughts on the Occupy movement, which spread out from Wall St to vent anger at the misdeeds of banks worldwide. Carney appears sympathetic to that anger.

“The senior-most officials in those financial institutions [that failed] appeared to … not pay the price.”

Benedict Brogan, deputy editor of the Daily Telegraph, seems to like what he has seen in early moments of Carney’s first public grilling.

And so to does former MPC member Danny Blanchflower:

But as Carney presents himself as a man who manages by consensus, Blanchflower has a warning for him:

Carney declares his commitment to policymaking by consensus, neatly dodging a question about how his management style would differ from that of Sir Mervyn.

“It’s an approach I think is essential for the institution to be successful.”

But he concedes that there will be times when he is in the minority.

Carney, who has bemoaned the lack of popular understanding of some of the arcane terms of central-bank crisis-fighting, is given a plain-English test.

What’s a capital ratio?

“It’s the equity of an institution relative to the assets.”

And unwinding QE?

“Unwinding QE is to return the balance sheet of the Bank of England to its historic level.”

Tyrie is pleased with these pelucid responses and there is much rejoicing among the committee members.

If Carney is seeking to govern by consensus, is it a good start for him to be winning such praise from Danny Blanchflower, who it would be fair to say was often out of step with other members of the MPC and has been a fierce critic of Sir Mervyn King since leaving?

Carney is not touching on the Bank’s new role as both steward of monetary policy and financial sector stability.

“One of the core challenges in the economy right now is that the core of the banking system is not as strong as it needs to be.”

Tyire: “No kidding.”

What Carney is getting at, he explains, is that it will be an advantage to have the oversight operations and the monetary policy operations that that oversight will inform sitting next to each other.

Andrew Sentance, another former MPC member, thinks he sees a hidden message in the written answers.

FT currencies corr Alice Ross:

The pound rose against the dollar as the incoming governor of the Bank of England, Mark Carney, was questioned on his plans for UK monetary policy at a parliamentary committee hearing.

Sterling was 0.4 per cent higher against the US currency at $1.5722 as Carney faced questions on his views on further monetary easing in the UK and other issues affecting his governorship.

The pound hit a session high of $1.5767 at the start of the hearing as more hawkish lines from Carney’s statement were released, but later fell as the incoming governor sounded a more dovish note, in line with market expectations. Sterling was also slightly higher against the euro at €1.1592.

And Alice quotes Citibank analysts:

We think that if Mark Carney adds little new on the top of what has already been discussed on various occasions in recent past, this could be seen as even underwhelming to a degree. While sterling could rally in the absence of dovish surprises during the Q&A, the bounce need not be sustained if investors remain concerned about the UK economic outlook. At the same time, if Carney presents bold plans for activist policies involving further aggressive easing, the initial sterling sell-off could give way to more resilience if investors view the change in guard at the helm of the BoE as a precursor for more effective mix of monetary policies.

What, Carney is asked, is the vision of his current employer, the Bank of Canada.

“We provide price stability and financial stability to enhance the economic and financial well-being of Canadians.”

He sees analogues between the Bank of Canada’s declared purpose and what the BoE should do.

Given that the institution is being given considerable extra responsibilities … that creates a need either to reconfirm or adjust the vision for the institution.

He is pushed for some clarity. When would he be able to tell the committee what the Bank of England’s “vision” is? Within six months, Carney says.

Those new powers will arguably make Carney the most powerful central banker in the world. Does he want to be an emperor of more of a constitutional monarch, he is asked. Carney tries to dodge the curve-ball.

“No one individual is going to have the expertise of the collective of those [BoE] committees. It [the governor] cannot be an emperor. It’s not possible, even if one wanted to. More of a managing partner, if you will.

Tyrie steps in to let him off the hook, before he has to start trying not to compare himself to Queen Elizabeth II.

(Hmm. We may need an FT style guide ruling on Carney in future. MPs are calling him “Dr” – he has a PhD in economics from Oxford – but normal FT rules say we only give the honorific to doctors of medicine and divinity.
However, it is not a cast-iron rule. Perhaps the use of the title “Dr” will ebb and flow depending on how well he is seen to be doing in the job!)

The pound against the dollar over the last 6 months:

Telegraph sketch writer Michael Deacon:

The committee is now moving on to monetary policy…

Tyrie asks if UK current monetary framework is the right one.

Carney says Canada’s approach is similar to the UK’s, although it reviews the framework every five years.
“We have found it is an effective process ensuring there is… shared understanding of the “flexible” word in “flexible inflation targeting”.

Carney certainly seems to be serious about being a consensus leader:

There seems to be an appetite for debate about the framework is and what alternatives there could be and that should be encouraged.”

He says it is important that inflation targeting takes into account the effect on longer term growth, employment and other factors including household credit. These are what he calls the “macroprudential measures” being taken by the government.

He says public and private deleveraging is very important in the UK, so the central bank has to get “buy-in” from the government and others on how the way it seeks to control inflation complements those issues.

While he welcomes debate on inflation policy, he also says that “prolonged uncertainty is not helpful” so that debate should be short.

Carney says his consensus approach has proven to be effective in Canada. He says he is quite ready for what one MP calls “strong-willed MPC members” to disagree with him and even to be outvoted.

Carney: “I would prefer to be on the winning side more often than not, but I am prepared to be outvoted.”

Carney seems to be flagging up some fundamental changes to the way the Bank considers and reports on its inflation-control policy. So far, the Treasury committee and outside commentators are showing no signs of unhappiness with him.

MP points out that Bank of Canada meets 8 times a year to consider inflation targeting, BofE 12.

Carney: It is a matter of statute and I can’t imagine the statute being reopened.
Q. Is 12 too many
Carney: It verges on too many, yes.

(Carney is impressively personal with the MPs. He has used the names of most of them and has just complimented one committee member for an article they wrote this morning. MPs like that.)

(It was the Conservative Jesse Norman whose article he cited just now.)

With inflation above target as it is now, I think it would be useful to have a shared understanding (with policymakers) about what the potential timing on return to (inflation) target would be and why.

Important words now.

He says explicitly that he wants a US Fed style “threshhold-based guidance” and that the real question is whether it should be “time-based or state-based contingencies”.

In Canada, Carney says, a greater and more open discussion of inflation targets helped to manage market expectations. It had immediate effect in the money markets.

I believe it also reached over the heads of central bank watchers and markets to ordinary Canadians that…borrowing would be available for a period of time so… they could go out and act on this. Everybody knew about this commitment in Canada and it had an effect (on the real economy).

We ended up raising interest rates sooner than we expected because we had made our commitment (to low rates) conditional (on inflation predictions).

Carney reminds us all that he won’t actually be the governor of the Bank “for another 5 MOC meetings”.

So Carney has made it clear that he prefers “state-contingent” guidance on inflation control (a la Canada) rather than time-contingent.

Here is Faisal Islam, Chanel 4 economics editor, with his take on what Carney is saying:

And here is Chris Giles of the FT raising a question:

He is challenged as to how effective this approach is, with an MP citing the scepticism of former MPC member Adam Posen.

Carney says he will send the committee a Canadian study on the matter.

George Mudie, a Labour committee member, asks Carney if, given the need for the UK economy to reach “escape velocity”, he has “the courage” to challenge the current remit given to the Bank to maintain a set inflation target.

The incoming governor answers carefully, saying the economy may already be heading for growth to reach escape velocity,

but the question is not where policy is today but where it is going to be tomorrow and …whether there can be clarity given to that policy when I come into office.

Carney actually said it was “probable” that the current policy was heading in the right direction.

Claire Jones, the FT’s economic correspondent, explains Carney’s comments on Fed-style inflation guidance.

Both the Federal Reserve and the Bank of Canada have in recent years committed to keeping interest rates close to record lows for an extended period of time.

The idea behind such a move is that it will drive down borrowing costs for longer-term loans, such as mortgages, and boost lending. It is also supposed to lower yields on government debt with longer maturities.

And his caution prompts Chris Giles to tweet:

Mudie asks if Carney is going to aim for a “partnership with the Chancellor” that the Bank has to “do something for the economy because (Osborne) is fiscally too tied in”.

Carney is again cautious but recognises that he and the Bank has a role to play already in its remit to do something for growth, consistent with maintaining inflation at 2%

Carney says:

The best framework remains flexible inflation targeting. Properly operated and understood it is the best framework and the best contribution to price stability and full employment in this country and in my home country. I don’t start from a position of looking for a (Fed-style) dual mandate.

Carney’s catch-line in his recent comments has been about the task of the Bank of England to help the UK economy reach “escape velocity”. This led many to wonder whether he would seek to tinker with the mandate.

Sarah O’Connor, of the FT’s economics politburo, tweets this crucial point:

Ed Conway, Sky News’ economic editor:

Carney says he has discussed the remit of the Bank with Osborne and he believes “the best framework remains flexible inflation targeting”.

(Boat remains unrocked)

(You may notice that we have a new format for live coverage. One of the changes is that your comments are more prominent — just over there to the right of the main posts. We are, as ever, keen for you to have your say. So fire away — Ed.)

He is now being asked about nominal GDP targeting – ie should the Bank act according to the actual shape of the economy rather than allowing for future inflation levels.

Carney says he is “far from convinced” of the merits of moving to nominal GDP targeting although it is a “valid part of the debate”.

Carney’s still going strong but one eye now moves to the MPC, which will give its interest rate decision at noon. After that, it’s ECB rates at 12.45 and Mario Draghi‘s press conference — complete with questions about the Italian banking scandal — at 1.30. Truly a day for central bank nuts.

Lorcan Robe Kelly, Chief Europe Strategist at Trend Macrolytics:

Carney is being questioned by John Mann MP on whether it is appropriate for the Bank to question its remit – which the MP is suggesting the incoming governor is doing in advocating flexibility in inflation targeting.

Carney says that Mervyn King is himself and advocate of flexibility is and that the Canadian and UK approaches are not far apart in reality.

Mann says that the flexibility idea has crept in to discussions, including by George Osborne, and it “rather suits the chancellor in terms of fiscal policy to have the targets broadened”.

Will Carney “pour salt on the Chancellor’s head” to rein him in?

Carney says the terminology of flexible inflation targeting (FIT) is not new. Mann says it has only come in to the UK since Carney started talking about it.

Mann was referring to a speech by Carney in December.
But the incoming governor says there would be no question about the independence of the Bank under him, no hint that Osborne or any Chancellor would be able to influence him or MPC

No political influence will come to bear – it might be attempted – but it will not come to bear on the exercise of (the Bank’s) remit.

Emoticon Bank of England keeps rates on hold at 0.5 per cent.

QE unchanged too.

That’s as expected.

Mann asks whether they can judge Carney’s success on the basis of what economic growth the UK experiences?

He says price stability (inflation control) will be the mark of his and the Bank’s success.

Alice Ross, the FT’s currency correspondent:

Here’s the statement from the Bank of England Monetary Policy Committee.

The MPC continues to judge that the UK economy is set for a slow but sustained recovery in both demand and effective supply, aided by a further easing in credit conditions – supported by the Bank’s programme of asset purchases and the Funding for Lending Scheme – and some improvement in the global environment. But the risks are weighted to the downside, not least because of the challenges facing the euro area.

As Chris Giles, FT economics editor, puts it:

Chairman Tyrie asks if he is going to keep his tanks off the Chancellor’s fiscal lawn and the Treasury is going to keep its tanks off the Bank’s monetary policy lawn or whether he is more open to debate than his predecessor.
Says he will not comment about fiscal policy, though.

Carney is asked about a story in the FT that he was meeting Osborne this week and that the Chancellor had put pressure on the Bank in advance of today’s decision.

Carney says that the FT story was “the extent of my knowledge” of the Chancellor’s remarks, that he is not going to meet Mr Osborne and “I take that story with a pinch of salt”.

Carney says, under pressing questions from Tyrie, that he “reserves the right to chip in” to a debate about how the Bank can help the UK economy most effectively.

Carney’s been going for more than two hours now. Here are the salient points.

Emoticon “Flexible” inflation targeting is the best way for the Bank of England to go about its business but the bank needs a brisk review of its remit

Emoticon He wants a debate about a Fed-style dual mandate but doesn’t want to prejudge it

Emoticon The UK should consider forward rate guidance, which would allow the Bank of England to give very long-term signals, as the central banks of US and Canada can

Emoticon A “vision” for the BoE would be decided within six months of his taking office

Emoticon He’s “lukewarm” (in the FT’s Chris Giles’s one-word summary) on more Quantitative Easing in his written submission to the committee

Emoticon He will only serve five years as governor (on account of his daughters’ schooling)

Here is Simon Nixon, Wall Street Journal columnist and European editor, Heard on the Street:

(Those following these exchanges on Twitter are full of praise for Tyrie on the pressure of his questions on Carney about his relationship with Osborne and how that will work in the future.)

Carney has to ask an MP whether or not there has been an MPC inflation decision today.

To the markets and the FT’s Mike Hunter, who has the reaction for the MPC’s decision to leave rates and QE unchanged.

As traders expected, the UK monetary policy call remained a sideshow to Mark Carney’s debut in the Palace of Westminster. But sterling weakened a little after the Bank of England’s decision to keep interest rates on hold and make no changes to its bond-buying programme was announced at midday.

The pound was trading just above $1.57 against the dollar after the BoE announcement, a 0.2 per cent rise on the day. The FTSE 100 was also off session highs, which showed marginal gains on the day, and stood 17 points weaker at 6,278.22, a loss of 0.3 per cent.

James Knightley, an analyst at ING, opines:

Most of today’s interesting headlines have been generated by incoming BoE Governor Mark Carney (from July 1st). He is generally perceived to be somewhat more dovish than the outgoing Governor, Mervyn King, and his testimony to the Treasury Select Committee is in general supportive of that view – however an initial newswire headline relating to his written submission, which was taken out of context, did lead to a spike in sterling early on.

Carney on the effects of QE:

With all unconventional policies (like QE) there are costs associated.

But efforts to improve lending to business and ensuring adequate capitalisation of banks have been the right thing, Carney says.

Meanwhile, Ireland and the ECB have apparently reached agreement on the deal to liquidate Anglo Irish Bank and turn its €28bn into a state backed debt which will allow it to tap into funds from the European Stability Mechanism.

The tools of central banking, part 23.

In the semiotics of central banking, where the tiniest meanings of a governor’s choice of adverb are parsed for clues on future policy decisions, Sir Mervyn King’s eyebrows have been the subject of much analysis. They even got a mention from the MPs grilling Mark Carney.

But while Carney may be keen to have a debate on increasing the Bank of England’s remit, in one capacity at least he appears to lack his predecessor’s formidable powers.

Carney asked if the price being paid by savers, particularly pensioners, is worth it for stimulating growth and controlling the effects of interest rates.

He says he has been very aware of that effect on Canadian pensioners.

Asked about whether his non-Britishness might lead him insufficiently to favour the UK’s interests relative to the EU’s collective interest, Carney responds:

“It is in British interests that eurozone monetary union works.”

He adds:

“We are moving from the acute phase of the [eurozone] crisis to a more chronic phase.”

He supports the development of a “true banking union” in Europe but says it’s crucial that the interests of the City are safeguarded.

And the FT’s economics “guv’nor” warns that they aren’t tired at the Treasury select committee and there is no sign of Questionative Easing for Carney.

Could Carney see a situation where he would opt for the radical option of “helicopter money” — showering new money into the economy?

“I cannot envision a circumstance where I would support that as a strategy.”

The are policy tools left in the BoE armoury should additional stimulus be required, he says.

And with that, they’re off for a break. Tyrie notes that Carney looks fit, so it’ll be a short one.

Meanwhile, it’s two minutes till the ECB announces its own rates decision. Again, no change is expected. There is no official confirmation that the ECB has approved the Ireland deal, by the way.

Central bankers as rock stars? Be warned…

Emoticon ECB holds rates at 0.75%

Michael Steen, Frankfurt Bureau Chief of the FT, has already got his story written and published on the ECB decision.

He says:

Concern about the resurgent euro has been fuelled by fears that the ECB is the only major central bank that is not further loosening its policy and that it may lose out in a round of competitive devaluations.

While the MPs are whetting their whistle, here is the FT editorial on the merits of “helicopter money”.

Quarrels over fiscal and monetary policy must no longer overshadow the need to boost productivity. Otherwise growth will continue to disappoint.

They’ve started again and have moved on from monetary policy to banking regulation.

Carney says was important to address shortcomings of old Basel II and rebuild capital.

Carney said he was skeptical of the argument the banks made that the new capital ratios were restricted lending to the real economy.

RTE is reporting that the deal hammered out with the ECB in Frankfurt on the Anglo Irish Bank debt has been sent back to the Irish government for approval and that the Cabinet will meet at 2pm GMT.

Carney says competition of banks is an issue and will be addressed. George Osborne went some way to address this earlier this week.

Back to Dublin: It sounds like the Anglo Irish deal may not be straightforward.

But he doesn’t know if RBS and Lloyds should be broken up as he hasn’t seen all the costs and benefits evidence.

Carney takes issue with suggestion Canadian banks are embroiled in a scandal

Good soundbite on competition:

Ease of Exit promotes ease of entry

FT’s Regulation Correspondent on how the UK payments system works:

What is the payments system?

There are several electronic methods for moving money around the UK, depending on how fast the payment needs to be made and how much money is involved, ranging from CHAPS – very fast and used for high-value transactions – to BACS, Faster Payments and Link, which powers the ATM networks for retail customers.

Banks can either be direct members of a network, which requires significant liquidity and IT spending, or access the network through another institution for a fee. At present there are 19 direct members of CHAPS and about 350 other institutions with indirect access. The Bank of England has recently been actively encouraging high-volume participants to join the networks directly to make it easier to spot threats to stability, and the government is concerned that the fees for indirect access may serve as a barrier to competition.

Carney’s grilling has gone on so long that he will shortly be up against Mario Draghi’s press conference in Frankfurt. For ease of reading, a post from Carney’s hearing will start thus:


and one from Draghi’s presser will be marked thus


simple, innit?


The Committee wants to know what the alternatives are to shrinking balance sheets? He suggests asset disposals – but isn’t naming any names!


Super Mario should be taking his seat any moment now. As if he didn’t have enough to deal with — explaining the latest interest rate decision, discussing the ECB’s role in bond-buying, saving the euro single-handedly etc — Draghi is also expected to face questions about the scandal that has engulfed Monte dei Paschi di Siena, a lender that Draghi oversaw when he was governor of the Bank of Italy.

This from this morning’s update on the Italian banking scandal by Rachel Sanderon, the FT’s correspondent in Milan.

The new management of Monte dei Paschi di Siena, the Tuscan bank at the centre of a widening derivatives scandal, has sought to draw a line under the episode despite finding evidence of “clear errors” in the accounting of those transactions.

Fabrizio Viola, Monte dei Paschi’s chief executive, said in a conference call that the three deals at the centre of the revelations were the only ones the bank had discovered that were unaccounted for after several months of investigating its entire financial portfolio.

Mr Viola also confirmed that the losses related to the three derivatives trades would come in at €730m, amid escalating judicial action against the bank’s former management and questions about its regulatory supervision.


has landed

First up, his words on the decision to keep rates on hold.

Medium to long-term inflation outlook “firmly anchored” to below but close to 2 per cent target.


Pours himself a glass of water before answering question on bank leverage.

In case we forget: European leaders are arriving in Brussels for a summit meeting of potentially great importance in setting a new 7-year EU budget.

David Cameron has set an austerity standard, according to Sky News’ deputy political editor Joey Jones:

A recent Barclays study found that for European banks, RWA comprised just 32 per cent of total assets, down from 53 per cent two decades ago.

Carney’s voice is getting fainter and fainter after nearly four hours of questions.

Here are immediate reaction tweets from Ralph Atkins, FT markets editor,

And Michael Steen, Frankfurt bureau chief, who is in the room with Draghi and co.


He laughs twice when asked if expectations about what he can do have been set too high by the media.

They can knock me down again



Banks that borrowed €489.2bn in the first of the two LTROs — the ECB’s three-year cheap-loan programme — have repaid €140.6bn of it.

Economic outlook

Further weakness ahead in euro area growth in fourth quarter and start of this year.

Latest surveys suggest further evidence of a stabilisation, albeit at low levels, in consumer and business confidence. A gradual recovery should start “later in 2013″. But risks still to the downside, in part because of slow pace of reform in the euro area but also because of global uncertainty.


“Underlying price pressure should remain contained.”

Risks are broadly balance upside-downside. Upside risks from oil price, downside from weaker activity and exchange rates.

And as Super Mario speaks,the currency markets listen, reports the FT currencies corr Alice Ross:


Annual growth rate of loans to private sector remained negative in December at -0.1 per cent. This reflects the current stage of the business cycle, heightened credit risks and banks slimming their balance sheets.


“The behaviour that’s been exhibited and confirmed this week particularly around for example Libor is reprehensible and should be prosecuted to the full extent of the law in the various jurisdictions that are affected.”


In short: “Past policy action is bearing fruit.”


And now questions. First, has the ECB reached a deal on the Anglo-Irish affair.

On Ireland, there wasn’t a decision to take. The ECB council took note of the Irish operation. Draghi refers everyone to Dublin.


And what of the appreciation of the euro? Draghi says it’s a sign of a return of confidence in the euro. But the exchange rate should reflect fundamentals and are at about their historical average. In any case, the exchange rate is not a policy target, so Draghi largely bats that one away too.


Neil Dennis on the FT’s markets desk reports:

The euro is falling after comments from Draghi that risks to growth remain due to the slow pace of reforms, and that the ECB’s policy remains “accomodative”. Single currency down 0.2 per cent at $1.3489 against the dollar. Stocks, however, remain fairly robust on hopes of further easing measures – FTSE Eurofirst 300 up 0.3 per cent.

Pressure remains in the periphery following this morning’s Spanish bond auction, at which Madrid was forced to pay higher yields due to recent allegations of corrupt practices within the government. Spain’s 10-year yield up 4.2 basis points to 5.4 per cent.

A statement on Ireland has just been put on the ECB website but no mention of the Anglo Irish agreement deal in it.


He’s done.

Downing Street has a tough message for the EU on budgets. Here is the official UK government Twitter feed:



Draghi says that this month 55 per cent of total sovereign issuance came from “non-core” countries, including Ireland and Portugal tapping medium- and long-term bond markets. This time last year, 93 per cent was coming from core countries.

Divyang Shah at IFR Markets writes on Draghi’s comments on the ECB’s LTROs (those cheap loans to banks):

The ECB will closely monitor conditions in the money markets and make sure that monetary policy remains accommodative. This is a reassuring sign that suggests that if LTRO repayments go too far and excess liquidity declines too sharply then the ECB will be willing to act. These reassuring comments have helped Euribor strip which had been in negative territory but is now back to positive with the Euribor curve flattening.

Currency watchers are agreed that Draghi hasn’t set out to bolster Euro levels in his appearance today.


For all the cheery headline numbers from the sovereign and corporate debt markets, Draghi acknowledges that credit conditions overall remain “challenging”.

Apparently, in Dragh-ese, “taking full note” of something means giving it full approval. As in: I take full note full of England’s defeat of Brazil last night.

The state of the world’s currencies is beginning to play a big role in this afternoon’s events. This is what Draghi himself says, according to Alice Ross:

On Ireland, the Wall Street Journal’s Charles Forelle tweets:


Now to the juicy stuff. Draghi is asked whether he swept the Monte dei Paschi di Siena (MPS) scandal under the carpet to avoid spoiling his chances of graduating from the Bank of Italy to the ECB.

Draghi keeps his cool and refers anyone who wants to know what’s what to the Bank of Italy’s version of events, published a week ago, and the verdict of an IMF team. Draghi quotes the IMF team failing to find fault with the the BoI’s handling of MPS. He notes that he ordered the two investigations into the bank.

“I don’t want to take sides in the Italian election but you should discount much of what you read as part of the usual noise of Italian elections.”


The FT’s Michael Steen, at the press conference, keeps up the pressure on Draghi about Ireland. The governor steadfastly refuses to get into it. We’re not going to get anything out of him on this matter today.

Meanwhile, Irish journalists online are reporting that Enda Kenny, the prime minister (Taioseach in Irish) will make a statement in the Dail (parliament) at 3pm GMT.


Draghi is hammering on the table as he insists the ECB will go on doing everything it can to get credit flowing properly — but only, of course, within the central bank’s mandate.

The Delphic utterings of Mario Draghi have not held the attention of the FT capital markets and commodities team.

A couple of take-aways from the CARNEY session:

Emoticon He is open to reviewing the UK’s monetary policy framework but the current policy of inflation targeting had been the most successful.

EmoticonThe rate-setting Monetary Policy Committee’s decisions could be made more effective if it employed clearer guidance about future policy actions

Read more from the FT’s economic team.

Thoughts from the FT’s Claire Jones:

For once, Draghi agrees with Jens Weidmann, president of the Bundesbank. The two were famously at odds over whether the ECB should buy the bonds of beleaguered eurozone member states. But the ECB president says Mr Weidmann is “absolutely right to be worried about central bank independence.”


A last effort by an Irish reporter to get Draghi to say something about the Anglo-Irish affair. All he gets is another insistence that this is a matter of domestic policy — in which it would not be proper for an ECB president to intervene — broad praise for Dublin’s efforts:

“The efforts of the Irish government in this direction, but more importantly on the economic policy front, on the financial policy front, that’s what really matters in the end to re-establish Ireland’s reputation in the financial markets.”

And with that, Super Mario is finished.

Theatrical thoughts from David Keohane of Alphaville

Alphaville is taking the resolute dead-bat played by Draghi on the issue of Ireland as a positive sign. Probably.

Whatever the shape of that something, it will replace the emergency liquidity assistance that’s been supplied for Anglo all these years — Ireland’s famous secret liquidity — which would be a seismic moment.

(And by the way, for non-UK readers, a resolute dead-bat is not a defunct species of aerial mammal, but a way of blocking a cricket ball without risking losing your wicket.)

Draghi has departed and left the euro down 0.5 per cent to $1.3449

The Eurofirst 300 index of leading shares is up 0.5 per cent though.

The FT’s Claire Jones noted that the euro dipped when a few people interpreted Draghi’s comments on the single currency as potentially paving the way for a rate cut. This from Nick Kounis of ABN Amro:

When asked about the strength of the euro explicitly, he noted that the rise reflected an increase in confidence in the single currency area, that the trade weighted exchange rate was not high from a historical perspective, and that the central bank did not have an exchange rate policy. However, he went on to note that the ECB would need to see how the rise in the euro impacted the growth and inflation outlook, with the ECB’s forecasts set to be published next month. In addition, he pointed out that a continued strength in the euro could impact the balance of risks to inflation. This hints that euro strength – if sustained – could eventually trigger a rate cut.

The euro hit its weakest level since January against the dollar after Draghi, warned that the strength of the single currency could pose a threat to the central bank’s inflation outlook. This from Alice Ross, the FT’s currencies correspondent:

The pace of the euro’s rise this year has alarmed some companies and policymakers, after a surge in appetite for eurozone assets that has sent the single currency up nearly 4 per cent against the dollar.

“The appreciation is a sign of the return of the confidence in the euro,” Mr Draghi told reporters at a press conference following the ECB’s decision to keep interest rates on hold, as widely expected.

But he added: “We want to see if the appreciation is sustained, and if it alters our assessment of the risks to price stability.”

The euro fell 0.8 per cent against the dollar to $1.3412, its weakest level in nearly two weeks. It was 1.3 per cent lower against the yen at Y124.94 and fell 1.1 per cent against the pound to £0.8531.

“We suspect the euro tailwinds have abated markedly after Draghi,” said Valentin Marinov at Citigroup. “Investors will be mindful of the fact that further excessive currency strength could trigger an ECB response sooner than expected. In addition, with risks in the periphery on the rise again, the euro could become more vulnerable.”

That’s about it for our live coverage of all today’s central bankery. See for more news and analysis on Irish deals, Italian scandals, Canadian governors…

Here’s a parting thought from the FT’s Michael Steen, who was at the Draghi press conference (even though his car battery had died).

What we learnt from Draghi today — and it required some collective persistence by the press pack — was that the Irish government’s plan does take them off so-called Emergency Liquidity Assistance, a form of short term emergency aid, and bring them a step closer to normality.

Just as Mr Draghi finished his press conference, the Irish Taosich, Enda Kenny, finally confirmed what the big plan is: “The Irish Promissory Notes are being exchanged for long-term Irish government bonds with maturities of up to 40 years”.

This will serve two purposes: it will reduce the cost of servicing the debt and, taking in Mr Draghi’s comments on ELA, it means the bonds can be deposited at the ECB in return for liquidity rather than at the Irish central bank — an exceptional and temporary arrangement.

So, job done? Well not quite, Mr Draghi’s repeated formulation that the ECB “takes note” of the Irish move means it can at any time return to this question and — potentially — decide that the Irish are guilty of “monetary financing”, essentially paying off debt by printing money.

The other big question is to what extent the Irish public welcomes the move. Will the reduction in interest payments be enough? Ireland still faces huge debts and there were growing calls in Ireland to simply write off debts incurred bailing out irresponsible banks.