In the City

Changing the guard

Jock Bruce-Gardyne

rr his weekend the most influential 1 Governor of the Bank of England since Montagu Norman steps down after a decade in the chair. The City of London will not be the same place without him. And it seems a safe prediction that when the history books are written Lord Richardson's reputation will be deemed a good deal more secure than that of his most celebrated modern predecessor.

His judgment was not always infallible. The Bank's handling of the 1976 sterling crisis looked somewhat butter-fingered at times — although in fairness the relative responsibility of Governor and Chancellor, Bank and Treasury, in that incident re- mains to be unravelled. He was surely a little unwise to press his case against the in- troduction of indexed instruments of funding — regardless of its merits — as far and as strenuously as he did in the face of what he must have known to be the deter- mination of the Prime Minister to proceed. And had he forewarned her of the paunchy spectacle of monetary growth to be revealed when the corset was removed in 1980 (even though its full extent was not foreseen by anyone), the Bank and he might have had a smoother time thereafter with No 10. Most seriously, his public endorsement in 1981 of the Standard and Chartered bid for the Royal Bank of Scotland, and his public repudiation of the rival bid from Hong Kong and Shanghai, were not just con- troversial: they were also remarkably hazar- dous. If the Monopolies and Mergers Com- mission had recommended, as it very easily might have done, that the markets should be left to decide the issue, and if the Government had accepted such a recom- mendation — and it would have been awkward for it to have done otherwise then Hong Kong and Shanghai would presumably have won. And what would the Governor have done then?

But fortune favours the bold. The Monopolies Commission saved everyone embarrassment by banning both bids for the Royal Bank. As for Lord Richardson's rela- tions with the tenant of 10 Downing Street, it seems unlikely that tensions would have been eliminated by the avoidance of par- ticular incidents: the chemistry was wrong. These, however, were the small change of the Governor's decade. It is for the big issues that he will be remembered, and it is by them he will be rated: the secondary banking crisis of 1974, and the sovereign bor- rower crisis of 1982. For both he is likely to score high marks. There are those who say the Bank brought the secondary banking crisis on itself by the laxity of its supervision of financial markets following the publica- tion of Competition and Credit Control. Yet it must be doubtful to what extent more stringent supervision could have prevented many people getting into trouble, given the scale of the contemporary monetary splurge for which the Bank was not primarily responsible. In any case Lord Richardson did not arrive until the crisis was about to break.

When it did he moved with speed and great decisiveness. There was probably an element of rough justice about some of the choices made between those to be hauled aboard the 'lifeboat' and those to be left to drown; and undoubtedly some of the com- mercial banks felt they had been bullied by the Bank into the position of support in conflict with their own best judgment and experience. But in these affairs unless the central bank is prepared to throw its weight about the dominoes will start to tumble. Lord Richardson's priority was clear: he saw that London's reputation as an interna- tional financial centre was threatened, and had to be protected at all costs. That it emerged unscathed was the measure of his achievement.

So when the sovereign borrower crisis came along eight years later he was not only the senior central banker on the circuit, he was also in a position to speak from first- hand experience in a way that none of his colleagues could. Credit for the avoidance of a cumulative series of defaults must be shared with several others — notably Paul Volcker of the US Federal Reserve and Jac- ques de Larosiere of the International Monetary Fund. And of course the end of the story is not yet told. Nevertheless it does seem that the influence of Lord Richardson in pulling together, and holding together, the essential spread of commercial banking lenders was — to put it at its lowest — con-

'It's OK — just two rival groups of vigilantes.'

siderable. The central bankers' club is an institution where he will be widely missed.

He also did a lot to transform relations between the Bank and the public. To begin with he was regarded as a remote and secretive figure — hence the smart remarks about the Bank as 'the Tomb of the Unknown Governor'. But in time he suc- ceeded in lifting some at least of the veils of opacity behind which the Bank had tradi- tionally operated. The Bank remains a much more private institution than the Treasury; that is probably of the nature of both beasts. But it is much more accessible than it used to be.

The Governor's own special contribution to this process was his series of appearances before the Treasury and Civil Service Select Committee. Possibly because of his early training as a barrister, he proved a masterly performer, handling the sometimes wayward membership of the committee with tact, firmness and occa- sional humour — so much so that there were times when Sir Geoffrey Howe was thought to suffer by comparison.

The relationship between the Bank and Treasury is not, and probably never will be, an easy one. By comparison with other cen- tral banks the Bank of England, as Chur- chill is reputed to have said of the first and last Lord Bossom, is 'neither one thing or the other'. It lacks the virtual autonomy of the Fed and the German Bundesbank; but it is not effectively the creature of the official machirie like the Banque de France. This in- termediate status leads to tensions, with faults on both sides. Lord Richardson eschewed the public criticisms of Treasury performance in which one or two of his re- cent predecessors had occasionally indulg- ed: that was not his style. He preferred to allow the message of dissent to emerge between the lines. Given the constraints inherent in the Bank's legal status, that was probably the path of wisdom.

His successor will be a very different sort of Governor. He will have quite a lot to learn, and fast. Domestically it will be in- teresting to see how he copes with the Treasury and Civil Service Committee: if one might venture a word of advice as a short- service former member of that body, it would be that it should not invariably be valued at its own estimation. Mr Leigh-Pemberton has already had a chance to discover that the comments of a future Governor attract at- tention on a scale which those of a chair- man of a clearing bank are not vouchsafed. But he is a naturally gregarious and friendly character who should be found sympathique by the press.

The learning curve is likely to prove steepest on the international front, which inevitably occupies a steadily increasing proportion of the modern Governor's time and effort. Men Like Paul Volcker and Herr Karl-Otto Pt5h1 of the Bundesbank have been around the Group of Ten and the other numerical congeries which run the in- ternational financial system for a long time now, and know its trade secrets (of which there are plenty) backwards. It is unfor- tunate that the international side of the Bank of England may coincidentally be the one to need some strengthening in the years ahead, But Robin Leigh-Pemberton has this in common with Lord Richardson: he too was trained as a barrister and is therefore experienced in the art of master- ing a complicated brief.

He is, one feels, more the natural chair- man than the chief executive, and indeed won universal acclaim in the former role at the National Westminster. This may be just what the Bank of England needs at this juncture.

Lord Richardson did much to enhance the stock of talent in the Bank at middle rank, but like most men cast in a heroic mould he was not the sort of great oak in whose shade the saplings grew. They should find it easier to show their calibre under Robin Leigh-Pemberton. Relations with 10 Downing Street should be less tense (par- ticularly now that Professor Alan Walters, the Prime Minister's economic guru, is likely to be spending much more of his time on the other side of the Atlantic). Relations with the new Chancellor could prove more demanding.

For that reason I wonder whether some of the comment about the outgoing Gover- nor's disappointment at not being re- appointed for a further term may not have been somewhat overdone. That he was in- itially disappointed may well be true. Whether that disappointment is quite so keen now that the structure of the new ad- ministration has been settled is, perhaps, less certain.