Earlier this year I drew a comparison between the Bank of England governor Andrew Bailey and the Metropolitan police commissioner Dame Cressida Dick. When appointed, both were hailed as head-and-shoulders the best qualified internal candidate for the job. Yet both have subsequently attracted volleys of flak for everything that has gone wrong on their watch.
That’s a peril of the media age for any high-profile public servant. But Dame Cressida, hugely respected by fellow officers, seems to rise above it. Bailey, by contrast, is beginning to look beleaguered, a recent fiasco over interest rates having followed the rattling of several skeletons in his record as a former regulator. Many in the City now wonder whether he was ever the right man for the top job.
Let’s look first at the office, then the man. The governorship dates from 1694 — Bailey is its 121st incumbent — and is one of the three most important central banking posts in the free world, alongside the chair of the US Federal Reserve and the presidency of the European Central Bank. London is still a global finance hub: post monetary union and Brexit, the governor has a permanent top-table seat while his opposite numbers from the once-mighty Bundesbank and Banque de France sulk at the back of the hall.
So the job demands stature as well as competence. Mark Carney, Bailey’s Canadian predecessor, was a fish out of water in Threadneedle Street but an A-lister on the international monetary circuit. Before him, Mervyn King was recognised as a world-class economist and Eddie George as a technocratic master of markets. Further back in living memory, Robin Leigh-Pemberton, Gordon Richardson and the 3rd Earl of Cromer exuded the kind of patrician self-confidence that enabled them to rule the City the old-fashioned way, by a mere raising of the governor’s eyebrow.
Those names constitute the complete roll call since 1961, with one omission: Leslie O’Brien (1966-73) was the first governor to have risen all the way through the Bank’s internal hierarchy but by general consensus the least effective of modern times: according to one obituarist, ‘a competent and loyal public servant [who] was sometimes thought to lack the personal authority the City expected’. And that, I’m afraid, sounds very much like Andrew Bailey.
How did Bailey scale the summit? The grammar-school-educated son of two teachers, he gained a PhD in economic history before joining the Bank in 1985 and winning its ‘rising star’ badge in 1996 as Eddie George’s private secretary. From 2004 to 2011 he was chief cashier and signatory of the banknotes (as O’Brien had once been) as well as ‘executive director, banking’.
Within that role, from 2007, he also headed the Bank’s ‘special resolution unit’, working out what could be salvaged from banks and building societies wrecked by the financial crisis. Already the ‘blue-eyed boy’, as one of his colleagues told me at the time, his performance in this frontline assignment is said to have won the admiration of Treasury permanent secretary Nick Macpherson, who became a sponsor of Bailey’s further rise to deputy governor, running first the Bank’s Prudential Regulation Authority and, from 2016, the Financial Conduct Authority (FCA).
Clearly Bailey had a good 2008 crisis: we might even call him one of that episode’s unsung heroes. But one banker who encountered him in fair times as well as foul gives a more mixed report — of a rather nervous regulator who seemed to bend in the wind and shy away from confrontation. And in his FCA role, banana skins abounded.
When London Capital and Finance collapsed in January 2019, leaving more than 11,000 bondholders with losses, a report by former judge Dame Elizabeth Gloster found ‘significant gaps and weaknesses’ in the FCA’s oversight. Bailey apologised to investors but he and two FCA colleagues tried to have their names excluded from Gloster’s report. Bailey also had to defend the FCA against accusations that it had been ‘asleep at the wheel’ during the collapse of the £3 billion Woodford Equity Income fund.
Worse still, he has come under fire for an earlier role relating to the notorious post-2008 mistreatment of small--business customers by RBS through its Global Restructuring Group (GRG). It turned out that Bailey had been involved in the creation of the Treasury’s Asset Protection Agency, which had overseen GRG and pressured it to foreclose on business customers. But he failed to mention that connection when quizzed about GRG by the Treasury select committee before his FCA appointment; and later refused to publish the FCA’s full report into GRG (claiming he was prevented by law from doing so), offering only a summary that looked very much like a whitewash.
The FCA eventually decided not to take enforcement action against RBS; not Bailey’s decision, the Bank said, but it left a sour taste. Kevin Hollinrake MP, the Conservative chair of the all-party group on fair business banking, says: ‘Andrew Bailey is 100 per cent responsible and culpable for this brazen cover-up.’
One way or another that’s quite a charge sheet. If all those facts were known, we might wonder why he had not been ruled out for governor when Carney finally stood down after an extended tenure. But the Treasury, which likes to keep a grip on senior Bank appointments, was still firmly for Bailey. Two other deputy governors, ex-civil servant Sir Jon Cunliffe and former Goldman Sachs economist Ben Broadbent, made no serious challenge. Boris Johnson’s reported championing of his former mayoral adviser Gerard Lyons failed to gain traction.
Voices on the Bank’s court of non-executive directors favoured diversity — in the person of former deputy governor Minouche Shafik. There were other runners, but the Treasury had the support of Sajid Javid who as chancellor officially made the appointment, and in December 2019 Bailey was announced — to some relief within the Bank itself, where he was hailed as one of their own.
And let’s be fair to Bailey. There could not have been a worse moment for him to take over: mid-March 2020, days before lockdown, when markets were quaking. He can’t help his pudgy appearance and he’s no duller than Carney as a media performer or in front of committees. His deputy governors are invisible; the Bank’s only eloquent spokesman, economist Andy Haldane, left in June. And some recent criticisms of Bailey have been relatively trivial, including barbs about letting staff continue to work from home and banning portraits of past governors with slave-trade connections.
Finally, no one says he’s not a nice bloke. Telegraph columnist Simon Heffer, a friend since they met at Cambridge more than 40 years ago when Heffer was a leading Tory and Bailey ran the Fabian Society, calls him, ‘a thoroughly decent, dedicated, hard-working public servant, entirely without deviousness or political side’.
Perhaps those qualities don’t play so well in modern public life. Perhaps also the regulatory blots would count for less if Bailey was recognised as the master of his economics and markets brief — especially now, in the face of an upsurge of inflation, which is every central banker’s enemy. But the recent interest-rate episode suggests the very opposite.
The City had interpreted previous Bank messaging to mean the base rate would rise from 0.1 per cent to 0.25 per cent at the November meeting of the Monetary Policy Committee (MPC). Traders had adjusted their positions and some mortgage lenders had raised terms accordingly. But on the day, seven of nine committee members, including Bailey, had cold feet and voted for no change — provoking a bout of market volatility and furious criticism for ‘appalling signalling’.
To paraphrase Keynes, there’s nothing wrong with changing your mind when the facts change: a slowing of economic recovery gave MPC members legitimate second thoughts. And to paraphrase the legendary US Fed chairman Alan Greenspan, there’s nothing wrong with ambiguity so long as markets are convinced the central bank is ahead of the game. But in this case the governor just looked lame: ‘I never said, none of my colleagues ever said, rates will go up in November.’ And the Bank’s authority looked correspondingly diminished.
‘I hoped he’d grow into the job but frankly he hasn’t,’ was a comment from a City grandee with no axe to grind this week. ‘You’d have to conclude that he’s significantly overpromoted.’ ‘A habit of failing upwards’ was another description of the Bailey career path.
The Peter Principle is an aphorism that says executives rise through hierarchies until they reach their level of incompetence. Like his forgotten predecessor Leslie O’Brien, Bailey was a highly competent middle manager; it’s his misfortune and ours that momentum has carried him all the way to the governorship.