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Santander seen privately as “aeroplane without engines”

We’re pretty much all driven by guilt about the past and fears about the future. The deadly human ability to look back and forward without appreciating Now has always been, and always will be, a powerful guide to what we might do in any given set of circumstances.

This not exactly original observation is nevertheless made important in in the light of what Bank of England Governor Mark Carney has just done: that is, order a stress test of the UK’s banks in the event of a housing crash. Let me, if I may, expand on this.

Carney has had something of a rough ride since he arrived from Canada. It can’t have been nice, for example, to pitch up (having been sold one task) only to be given something entirely different to do. Within a few weeks this led the Governor to remark to a friend that he thought George Osborne “something of a huckster”. Mr Carney doesn’t like the Chancellor’s Help to Buy scheme – he not unreasonably sees it as dumb politics – and he isn’t for a minute fooled by Osborne’s claptrap about growing around corners. He quite rightly sees a grubby politician trying to win an election….and having walked himself through the books of our banks, he has seen enough to decide that there could be a major meltdown on his watch.

Unlike his predecessor – or Ben Bernanke – he isn’t an academic, but a career banker who (some believe) walked away from Goldman Sachs because he could see that the culture there bred not so much moral hazard as dangerous driving. He went back to Canada, became a civil servant, and by 2008 was preferred to older rivals for the job as Bank Governor. Carney’s actions as the Bank of Canada’s governor are said to have played a major role in helping Canada avoid the worst impacts of Crash1, most notably his personally taken decision to cut the overnight rate by 50 basis points in March 2008…just 30 days after his appointment.

“He’s way quicker than the background,” says one former Goldman colleague, “he sees the trucks coming down the road before others do. The guy anticipates. That’s his unique thing”.

Given the behaviour of most bankers, you’d have to agree that anticipation is indeed a USP in his sector. But this emphasis on foresight  – of facing the future armed with reality rather than denial and a poor regard for consequences – is what intrigues me about the decision the BoE’s new Governor has just taken. As part of the analysis, Carney and his FPC members will amend the European test to include a UK housing meltdown, focusing in particular on numbers 5-8 in the UK top ten of financial institutions – Standard Chartered, Nationwide, Santander and The Co-operative Bank.

A Slog source offered me a tidbit three weeks ago in relation to Santander’s big show of “irritation” at the British authorities screwing around with the bank’s various licence requirements for expansion: the Santanderines were moaning at length about “bureaucratic red tape” and so forth. This person told me that such was merely a smokescreen to hide one simple fact: senior bods at the Bank of England think Santander is an aeroplane without engines.

Mark Carney is a reformer. I’ll be honest and fess up to the fact that his first utterances on arrival in the Septic Isle, I thought he might be a chump. It took another City source to point out to me that, as of last year, the Governor now has powers beyond the reach of politicians to set tougher capital requirements and demand more healthy liquidity ratios. This is not to suggest that he is some kind of conquering hero who thinks most bankers should be shot as an act of mercy: he has already clashed with the Bank’s risk assessment supremo Andy Haldane, offering the blunt opinion that Haldane’s analysis “does not have a proper understanding of the facts on bank regulation”. (Haldane does suggest at times that shooting would be far too merciful an end for private investment bankers).

That said, both men are at least on Planet Earth regarding the need to do something. Hearing about Carney’s intention to run a tough stress test now those powers are his, I’m encouraged: he may turn out to be very good news indeed.