* LIBOR scandal raises doubts over BoE insider as governor
* Lawmakers "frustrated" by BoE's failure to spot Libor risk
* Deputy governor Tucker has challenge
By David Milliken and Sven Egenter
LONDON, July 12 Paul Tucker, the long-time
favourite to become the next Bank of England chief, was quick to
brand the Libor rate-rigging scandal "a cesspit" earlier this
week -- but the twists and turns of the saga have left doubts
about whether he will now get the top job.
A gruelling parliamentary inquiry into the scandal gripping
the City of London didn't deal a mortal blow to the deputy
governor's chances of succeeding Governor Mervyn King. But it
has shortened the odds on an outside appointment because the
central bank, on top of its main monetary policy mandate, is set
to become arguably the world's most powerful regulator.
Until the eve of Monday's hearing, Tucker -- who has spent
his career at the Bank of England -- was the front-runner to
take over from King next year, but bookmakers then put former
top civil servant Gus O'Donnell fractionally ahead.
"It would have been very difficult for (Tucker) to have a
triumph (at the hearing) ... and he didn't," said Karel
Williams, a professor of accounting and political economy at the
University of Manchester.
The scandal concerns Barclays' admission that its
traders manipulated the bank's contribution to the London
Interbank Offered Rate, or Libor, the rate at which banks lend
to each other overnight and which is the benchmark for many
The BoE got dragged in when a 2008 memo from Barclays'
former chief executive Bob Diamond, who was forced to resign
over the scandal, appeared to suggest that Tucker had condoned
More than two hours of questioning of Tucker by lawmakers
uncovered no evidence that this was the case.
However, the legislators on parliament's influential
Treasury Select Committee -- the main external body to which the
BoE, UK bank regulators and the finance ministry are accountable
-- were unimpressed by Tucker's and the central bank's failure
to sense there could be something amiss a year earlier in 2007.
"It doesn't look good, I have to tell you," committee
chairman Andrew Tyrie told Tucker during his evidence session.
Tucker's testimony may also not have endeared him to finance
minister George Osborne, who starts the hunt for a new governor
in earnest in a couple of months' time.
Osborne has had fiery exchanges with opposition finance
spokesman Ed Balls about the Labour Party's responsibility for
the LIBOR scandal, which took place when it was in power.
Osborne implied in a magazine interview last week that
figures close to the then-prime minister, Gordon Brown, might
have leant on Tucker to pressure Barclays to improperly lower
But asked on this, Tucker said "absolutely not", prompting
calls from legislators for Osborne to retract his claim -- which
would be politically highly embarrassing.
Tyrie's concerns reflect a broader worry from his committee
that the BoE is too hierarchical and slow-moving to take on the
mantle of financial regulation that will be handed to it next
year as part of wide-ranging reforms after a financial crisis
that cost Britain hundreds of billions of pounds.
"One does rather question -- when Mr Tucker and the Bank
were so incurious in the years after 2007 -- whether much good
is coming from putting the Bank in charge of so much," he said
the University of Manchester's Williams.
Stewart Hosie, a Treasury Committee member, agreed up to a
point. "I am very frustrated with the evidence from the central
bank and from Barclays. Nobody knew anything about what was
going on," he told Reuters.
But he added that this was much a failure of an entire
regulatory system as of the BoE alone or Tucker himself.
Mark Garnier, another member of the Treasury committee, said
the hearing had not sunk Tucker's chances, but he would need to
show that he had learnt from the Libor debacle.
"There is no such thing as a blameless candidate," he said.
Other observers say Tucker's real problem is an increasing
push for an outside candidate, possibly O'Donnell, who headed
Britain's civil service until last year and closely advised
prime ministers Tony Blair, Gordon Brown and David Cameron.
On paper, Tucker is the stronger candidate, with years of
experience in monetary policy and financial stability. But as
the BoE gets more powers while its record remains under
question, there is pressure to consider others.
"There might be an argument that there should be a new
broom, which Tucker will find it hard to argue against," said
BNP Paribas economist David Tinsley. "There are some obvious
advantages to refreshing the institution at the top."
O'Donnell, unlike Tucker, has experience of managing a very
large institution, and the BoE will double in size next year
when it takes on many of the staff and responsibilities of the
Financial Services Authority, which is being broken up.
However, the decision is highly political.
Tucker's next public 'job interview' comes on Tuesday when
he appears again before the Treasury committee alongside King
and FSA chairman Adair Turner -- also a contender for the
governor's job -- to present the BoE financial stability report.
He might want to take heart from the experience one of his
predecessors as deputy governor, the late Eddie George.
George was deputy governor during one of the biggest
debacle's of British economic policy in the past 30 years --
sterling's forced exit from the EU's exchange rate mechanism in
1992. Less than a year later, George became the BoE's governor.