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Chris Giles

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 

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. 

Ralph Atkins

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. 

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

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: 

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. 

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. 

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.

Chris Giles

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