Prof Philip Lane’s nomination to succeed outgoing Central Bank governor Patrick Honohan all but sets in stone the principle of selecting an outsider to run the institution.
For generations the governorship went to a top civil servant, with something of a revolving door in operation between Merrion Street, home of the Department of Finance, and the Dame Street headquarters of the bank. All that changed in the heat of crisis in 2009, when the late Brian Lenihan nominated Prof Honohan of Trinity College Dublin to take command of the bank.
Prof Lane also moves to the bank from TCD, where he has run the economics department for 12 years and has held the prestigious Whately chair in political economy since 2012.
The nomination of two successive outsiders for the governorship suggests any return to the automatic changeover between the permanent government and the bank is unlikely.
At issue is the need to demonstrate the bank’s independence of government, crucial in a situation in which Ireland is still recovering from a crash in which the bank’s failure to preserve financial stability was all too evident. If the Central Bank is one of the pillars of State, the pillar crumbled as runaway lending by the commercial banks led inexorably to disaster.
Vital independence
“The appointment of Honohan was seen as a step in the right direction in terms of managing the criticism around the lack of independence of the head of the Central Bank in the past,” says Dermot O’Leary, chief economist at Goodbody stockbrokers. “With this appointment, that criticism cannot be levelled in any way.”
But who is Philip Lane? And what job awaits him?
At the age of 46, the new governor comes to the bank on the back of a stellar career as an academic economist. He grew up Blackrock, Co Dublin, attended Blackrock College and was the top-ranked economics student when he graduated from TCD with first-class honours in 1991. He has a PhD from Harvard University and was, in the mid-1990s, assistant professor of economics and international affairs at Columbia University.
Highly regarded in economics circles, he is known as a serious-minded individual. Unlike some others in the world of economics, he is not a man to avidly pursue media microphones. He is more inclined to let the work do the talking. His curriculum vitae, which sets out numerous achievements, runs to some 4,800 words and he has had a range of international appointments.
“He’s an intellectual powerhouse,” says someone who worked closely with him in the past . “From a very young age, his advice and counsel has been sought out, not only nationally but internationally. He’s one for whom a lot of very influential people would have a high regard.”
There is, of course, a crucial European dimension to the governorship. Lane will sit on the decision-making governing council of the European Central Bank, which sets euro zone interest rates and oversees interventions in financial markets.
The ECB’s long campaign to shore up the single currency and the euro zone economy has proved contentious. Its actions in the Irish bailout remain a source of deep controversy. There is no shortage of big brains in the ECB but the sense among Lane’s contemporaries in Dublin is he will be more than comfortable in that milieu. “He will be in danger of being peerless,” says one of his admirers.
Lane already works at a high level in the European scene. He has been chairman of the advisory scientific committee of the European Systemic Risk Board since March. This appointment, by ECB president Mario Draghi, came one month before Honohan declared his intention to leave Dame Street.
In this capacity, Lane is an ex-officio member of the general board and steering committee of the ESRB, which oversees the stability of the financial system as a whole with functions overlapping those of the ECB governing council.
After he recommended Lane’s nomination to the Cabinet yesterday, Minister for Finance Michael Noonan said the ESRB appointment demonstrated his standing at European level: “Prof Lane’s outstanding economic, financial and policymaking record ideally position him to lead the Central Bank in the coming years.”
Such sentiments are shared by Honohan. “I have known and worked with Philip for almost 20 years and I am confident that he has the capacity and commitment to lead the Central Bank of Ireland as it delivers on its mandate in the coming years,” said the outgoing governor.
Lane takes over at Dame Street at a time of transition from the firefight against crisis which dominated Honohan’s tenure. One key task is to continue bedding down the new mortgage lending regime, a hot topic given Noonan’s public call for a review of the loan caps. The bank is not keen to change the rules.
Another task is to intensify efforts to finally settle the mortgage arrears debacle. Another still is to increase efficiency in the bank’s regulation of domestic and international banks and of the expanding insurance sector.
The Central Bank, which has some 1,600 staff, is seen to be unwieldy. In summary, tighter management is required.
Acceleration of decisions
According to a senior Government source, a number of private institutions have complained about the slow pace of decision-making at Dame Street. The quality of the decisions taken was generally seen to be sound but the lack of speed was a problem.
In the end it came down to a two-man shortlist on which Lane’s rival was Robert Watt, secretary general of the Department of Public Expenditure. Watt was long seen as the favourite within Merrion Street and Dame Street but informed observers said it was never a slam dunk. So it proved.
