Next Bank of England Governor: The Race is On

The odds on a former banker replacing Sir Mervyn King as governor of the Bank of England next year are shortening.

Governor of the Bank of England Mervyn KingCity heavyweights including Lord Adair Turner, ex-HSBC Chairman Baron Stephen Green, and former Barclays Chief Executive John Varley are gaining ground with bookies, even though the search for one of the most important jobs in the UK has yet to begin.

Officially, the Queen makes the appointment, but in practice Chancellor of the Exchequer George Osborne and Prime Minister David Cameron make the decision, and it is thought they could appoint an outsider for the first time since Baroness Thatcher was Prime Minister.

If Paul Tucker, currently King’s deputy and the leading internal candidate, is passed over, it will be seen as a veiled criticism of the Bank’s handling of the financial crisis.

“If you look at Mervyn King’s governorship, the one thing that it’s shown up is a lack of experience of the markets. Whoever the next Governor is, has to understand not only economics, but also markets,” James Barty, Advisor on Financial Policy, Policy Exchange, a think-tank which is close to the UK’s Conservative Party, told CNBC.com.

“There are enough bankers willing to do public service, and someone who has been a successful chief executive or chief financial officer at a bank could work.”

One argument against appointing a high-profile banker to the role is that some blame the actions of UK banks for deepening the economic crisis.

The odds-on favorite until now has been Tucker, whom Barty described as “the one internal candidate who understands markets.”

Both King, whose rule began in 2003, and his predecessor Edward George were deputy governors before taking over the top job.

King, backed by the Bank’s Monetary Policy Committee (MPC), has helped steer the UK through the financial crisis through cutting interest rates to historic lows and several rounds of asset-buying policies known as quantitative easing. Despite this, the UK is still expected to suffer the second part of a double-dip recession this year.

'Stubborn and Exasperating' Alistair Darling, Osborne’s predecessor, criticized King for failing to respond quickly enough to the credit crisis of 2007 and called him “stubborn and exasperating” in his memoir published after he left office.

Tucker is still the bookies’ favorite, with William Hill giving odds of 5/4 on his appointment, and Paddy Power [PAP-LN  Loading...      ()   ] putting his chances at 5/2.

However, Paddy Power also has former Financial Services Authority head Turner at 5/2, up from 11/4 a couple of weeks ago.

The odds on Varley and Green have also shortened to 11/4, down from 3/1. William Hill [WHM-LN  Loading...      ()   ] places Green, who is an Anglican priest, as well as the government’s Trade Minister, at 4/1 along with Varley.

Other names being bandied around include Standard Chartered Chief Executive Peter Sands and leading economist Sir John Vickers, who chaired the recent Independent Commission on Banking. Kate Barker, the only woman mentioned, who is a director of the government’s Office for Budget Responsibility, is a 20/1 outsider at Paddy Power.

This is likely to be the first time the job is advertised openly, after Darling brought in new guidelines in 2008 which recommended open advertisement as well as a confidential search. Since the coalition government came in, it has advertised for new members of the MPC in the Financial Times and The Economist in an effort to make the process more transparent.

The new Governor should be announced towards the end of the year, and will take over in June 2013.

A Treasury spokesman told CNBC.com that the process for replacing King would be decided on and an appointment made “in due course.” The Treasury declined to comment on the timing of the appointment.

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