Don Kohn, former vice chairman of the Federal Reserve, has just apologised for his errors in the financial crisis in front of the UK Treasury Select Committee, the equivalent of a Congressional committee.
He said he had “learnt quite a few lessons – unfortunately” from the financial crisis, including that people in markets can get excessively relaxed about risk, that risks are not distributed evenly throughout the financial system, that incentives matter even more than he thought and transparency is more important than he thought. Similar to Alan Greenspan’s mea culpa of 2008:
“I made a mistake in presuming that the self interest of organisations, specifically banks and others, was such that they were best capable of protecting their own shareholders”.
Mr Kohn told MPs Read more
With Mario Draghi, Italy’s central bank chief, looking almost certain to become its next president, the European Central Bank is set for a significant change of style – but not necessarily in strategic direction.
Under Jean-Claude Trichet, whose eight-year mandate expires on October 31, the ECB secured an inflation-fighting reputation in the tradition of Germany’s Bundesbank. During the eurozone debt crisis, the central bank acted as a crucial backstop, pumping liquidity on a huge scale into the banking systems of Greece, Ireland, Portugal and Spain. More recently, it has taken a much tougher line in insisting politicians take action themselves. Read more
The competition to succeed Jean-Claude Trichet, who steps down as European Central Bank president at the end of October, was a big story in February - when Axel Weber, Germany’s Bundesbank president, withdrew from the race. Since then it has gone quiet.
Now news agency reports from the European Union finance ministers’ meeting near Budapest, Hungary, at the weekend suggest a decision may not be taken until an EU summit at the end of June. Germany’s government “has decided to form its opinion close to that date,” Bloomberg reported Wolfgang Schäuble, the country’s finance minister as saying.
That sounds plausible. Read more
The whereabouts of the governor of Libya’s central bank, the man who holds the key to the Gaddafi regime’s finances, have confounded officials, diplomats and bankers who have been desperate to find him over the past two weeks.
Farhat Omar Bengdara has spent much of the time since the outbreak of the uprising against Muammer Gaddafi outside Libya but it is has been unclear whether he supported the regime or was co-operating with the opposition. Read more
A managing director of Goldman Sachs will replace chief hawk Andrew Sentance as an external member of the MPC, starting a renewable three-year term at the Bank of England on June 1. Sterling is rising as the markets take the news as bullish. Note: Mr Sentance will still be voting in May’s key MPC meeting. (Read more about Mr Broadbent’s views from Chris.)
Out of 27 applications for the position, only one was from a woman.
Cambridge and Harvard-educated Ben Broadbent has been senior European economist at Goldman Sachs since 2000. “I am thrilled. It is a great honour and a great responsibility,” he told the Financial Times on Monday. “His broad professional experience in the financial sector and academia, as well as his detailed knowledge of the UK economy, will be extremely valuable to the Committee,” finance minister George Osborne said in a statement. He also thanked Mr Sentance for his “original analysis”.
Mr Broadbent worked as an assistant professor at Columbia University, and as an economist at the Treasury and the Bank of England before joining Goldman. Recent comments from Goldman’s UK Economics Analyst note, edited by Mr Broadbent strike a hawkish note: Read more
Two out of four ain’t bad. Ferenc Gerhardt and Andrea Bartfai-Mager are two government nominees for the central bank’s new policy board, under a new law that allows the government to appoint four rather than two of the seven-strong council. The law was sharply criticised by the ECB for potentially impacting on central bank independence.
Markets have welcomed the appointments, deemed “reasonable” by Elisabeth Andreew, chief currency strategist at Nordea. Analysts had worried the new government appointees would want to promote growth at the expense of fighting inflation; all three major agencies have cut Hungary’s government debt rating since November. The appointment of two former central bankers has reassured markets, as has their strong anti-inflation line at interviews today. Read more
The process of replacing Andrew Sentance is well underway: the job was advertised in The Economist, and apparently a lucky few even received emails from the government directing their attention to the ad. We reckon about 30 applications will have been made, 10 of which from serious contenders. Ultimately, George Osborne will choose the external member from a shortlist, helped by a recommendation from the interview panel. (Incidentally, Ireland’s hiring too.)
What will all this mean for the balance of opinion on the monetary policy committee? Andrew Sentance is the Bank’s chief hawk, voting for a 50bp rate rise at the last meeting. He is coming to the end of his second term. It is likely his replacement will be less hawkish. But importantly his term doesn’t end till May 31st. This means he will vote in the all-important meeting on May 4-5, which will follow the Q2 GDP estimate.
Luc Coene, Flemish-speaking vice governor of the National Bank of Belgium, will be promoted to governor when French-speaking Guy Quaden steps down on March 31. His five-year term will begin April 1.
The move was widely expected. Mr Coene had been due the promotion last August when Mr Quaden was meant to retire, but Belgium’s inability to form a government meant no final decision was taken at that time. Read more
Guy Quaden, Belgium’s central bank governor, announced last night that he will step down on March 31. “It is time the government can provide stable leadership to the Bank in preparation for the transfer of the prudential supervision of banks,” he said. A likely successor is the vice governor, Luc Coene.
Whether the government is able to secure stability at the Bank is unclear. Mr Quaden should have retired last Autumn but problems forming a government in Belgium required him to stay in his post. There hasn’t been much improvement since then. Attempts to form a coalition after the June election failed in September. Chief political mediator Johan Vande Lanotte stepped down in January. Some agreement has been made on austerity measures after markets started to fret about Belgian debt, pushing up the cost of debt for the tiny nation by almost a third. Politically, the country is still in crisis, recently passing 249 days – a record – without a government.
Everyone knows that the two prime candidates to replace Mervyn King as Bank of England governor are Adair Turner, chairman of the soon-to-be-defunct Financial Services Authority, and Paul Tucker, deputy governor of the Bank. So this evening’s lecture by Mr Turner at Clare College Cambridge, with a response from Mr Tucker, was a mouth-watering prospect. It required a trip to the University.
Bank wags dubbed it a Sumo showdown.
The title: Creating a stable financial system: is the reform programme sufficiently radical?
The venue: Clare College, Cambridge (packed)
The outcome: a fascinating draw if that is possible in Sumo. Victory seemed to be going Turner’s way because Tucker didn’t show up until Turner had nearly finished, but this was a traffic related delay rather than the deputy governor shrinking from the fight.
Actually, there were very few outright blows landed Read more
Germany’s ruling centre-right coalition parties are expected to agree this week to appoint Jens Weidmann, chief economic adviser to Angela Merkel, the German chancellor, as the youngest president of the Bundesbank. The move follows the surprise resignation of Axel Weber as head of the fiercely independent German central bank.
Mr Weber, who will leave at the end of April, had been expected to be Germany’s candidate to be the next president of the European Central Bank. His departure has left Ms Merkel without an obvious alternative for the ECB job. Read more
Showing masterly timing, Mario Draghi, Italy’s central bank governor - fast becoming the frontrunner to succeed Jean-Claude Trichet as European Central Bank president - has a full-page interview in today’s heavyweight Frankfurter Allgemeine Zeitung.
Its publication comes as Angela Merkel’s government scrambles to decide who it should back for the ECB job after Bundesbank president Axel Weber self-destructed last week.
Under the headline “everyone should follow Germany’s example,” Mr Draghi not only draws lessons from Germany’s impressive economic rebound. He says exactly the sorts of things a German would want to hear from a central banker – the importance of combating inflation and of pursuing stability-orientated politics, how national governments should take responsibility for sorting out their own finances, etc. Read more
It’s official: there will be no women on the ECB’s 23-member governing council when Gertrude Tumpell-Gugerell’s term ends in June. Meet Peter Praet, right, the Belgian central bank director who has just been chosen unanimously by EU finance ministers to take the place of Ms TG on the Executive Board.
The other main contender for the seat at the ECB’s top table was Slovak Elena Kohutikova, whose sex many pundits thought would help her beat Mr Praet. Politics trumped, however: her chances were dampened by Slovakia’s refusal to back the €110bn bail-out for Greece, officials said last week. Formal confirmation will take place tomorrow. The appointment of a European “northerner” might be seen to increase the chances of a “southerner” (such as Mario Draghi) for the ECB’s top job – especially given Axel Weber’s exit. Read more
Bundesbank president Axel Weber said a lack of political acceptance in the eurozone for his hawkish monetary views drove his abrupt decision to step aside as Bundesbank president and to exit the race for European Central Bank presidency. Mr Weber will step aside in April, a year before his term would have expired.
Political reactions to his “clear positions” on important ECB decisions, such the purchase of government bonds, had added to his reluctance to follow Mr Trichet, Mr Weber told Der Spiegel at the weekend. “These positions might not have always been helpful for my acceptance in some governments,” he said in the first public explanation of his unexpected decision, which has thrown the race for the ECB presidency wide open and diminished the German government’s chances of pushing through their own candidate. (Jens Weidmann, Ms Merkel’s economic adviser, is widely seen as the frontrunner.) Read more
Kevin Warsh, governor of the Federal Reserve, is to step down at the end of March. It is not an enormous surprise: he has been at the Fed for five years and after the passing of the financial crisis, where he was a leading player in the Fed’s response, it is probably time for new challenges.
A few thoughts:
(1) Mr Warsh had hawkish views on QE2 and his departure will be seen as making the committee more dovish. I’m not sure that’s quite right: Mr Warsh was always a stalwart supporter of chairman Ben Bernanke and I think he helped to keep the committee together.
(2) His departure will leave the Board in Washington light on financial markets expertise and contacts. The Board will also be short of governors with strong Republican credentials which may not help it on Capitol Hill. Read more
Axel Weber has indicated he will not serve a second term as Germany’s Bundesbank president, but left open whether he might succeed Jean-Claude Trichet as president of the European Central Bank later this year. The Bundesbank president told a private meeting on Tuesday that he might not want to serve a further eight-year term when his current mandate expires in April 2012, according to a Bundesbank source.
Leaked reports of comments led to a flood of speculation on Wednesday that the 53-year-old former academic economist was also withdrawing from the race to succeed Mr Trichet, who will leave the ECB at the end of October, and that he was planning a move to Deutsche Bank, Germany’s largest bank by assets. Read more
During the eurozone debt crisis, European Central Bank policymakers (unlike politicians) have generally resisted the temptation to blame financial markets for its woes. Jean-Claude Trichet, its president, has just made an exception.
Giving evidence to the European Parliament, he warned some investors had an interest in talking up the prospect of “haircuts” – or imposed losses – on Greek and Irish debt. “Investors that are ‘long’ always lose money when you practice these ‘haircuts’. Those investors who are ‘short’ make money,” he said. Read more
For what might be the last time in a long time, Hungary’s central bank has increased rates by 25bp. The third rise since November takes the rate on the key two-week bill to 6 per cent.
The rise was expected, partly as a result of inflation and partly politics. Inflation was 4.7 per cent in the year to December, considerably above the target of 3 per cent. Politics, because it’s assumed the MPC would want to raise rates before a significantly altered rate-setting committee takes over in March. Read more
The European Central Bank has emerged from the financial crisis as one of the few institutions with its reputation intact – and its powers greatly enhanced – so a job on its governing council is a pretty good gig by any measure.
One is coming up in June, when Austrian economist Gertrude Tumpel-Gugerell is leaving after eight years at the top table. Two candidates have been put forward to replace her: Peter Praet, 61, a well-regarded director of the Belgian central bank for the past decade; and Elena Kohutikova, 57, a former Slovak national bank deputy governor and now an economist at Vseobecna Uverova Banka, a unit of Italy’s Intesa SanPaolo. A decision is expected at the next meeting of Finance ministers on 15th February.
One factor that could prove decisive is that Ms Tumpel-Gugerel is currently the only woman at the top of the ECB. The EU also likes its institutions to be “geographically-balanced”, usually a code that all the top jobs shouldn’t just go to the bloc’s largest and oldest members. The five remaining directors at the ECB hail from France, Germany, Spain, Portugal and Italy – surely another edge for Ms Kohutikova. Read more