British banker Andrew Hauser to play second fiddle on revitalised RBA

Treasurer Jim Chalmers can now claim to have done his best to reform the Reserve Bank after appointing an external candidate to the second most senior role at the central bank.

Federal Treasurer Jim Chalmers can now claim to have done his best to reform the Reserve Bank after appointing an external candidate to the second most senior role at the central bank.

It will be hard to know if the appointment of Andrew Hauser, now executive director for markets at the Bank of England, to the role of deputy governor of the RBA will improve its governance or help achieve the consensus-based decision-making on monetary policy sought by the review of the RBA.

The optics of introducing an outsider will go a long way to satisfying calls for an overhaul of the central bank, as Chalmers moves a step closer to reforming the RBA.

Once federal parliament has passed the Reserve Bank reforms legislation, due to be introduced this week, Chalmers will only need to sign a long-delayed statement on the conduct of monetary policy with Michele Bullock and he will have ticked all the boxes as far as the reform of the RBA goes.

Bullock’s appointment was welcomed by financial markets, but making an external appointment to the role of deputy governor might have been the best of both worlds for Chalmers.

Rather than go for another internal appointment after putting Bullock in charge, he can claim to have scoured the globe for the very best deputy governor of the central bank, a crucial role in terms of its governance and the communication of its evolving economic and policy narrative.

In passing over Chris Kent – the RBA’s current assistant governor, financial markets – the Treasurer risks triggering a further loss of talent to the private sector that has included former deputy governor Guy Debelle and former chief economist Luci Ellis in the past two years.

In this regard, Hauser’s in-depth operational experience in terms of financial markets should tend to fill any gaps left in the RBA’s ranks after the departure of Debelle.

Certainly he looks to have the right pedigree to match Debelle’s skills in times of crisis in markets, and with his vast experience at a major G-7 central bank, he’s a near perfect candidate.

Hauser now manages the BoE’s balance sheet and Britain’s foreign exchange reserves on behalf of its Treasury and provides market intelligence and analysis for the BoE’s policy committees.

As executive director for banking, payments and financial resilience, he oversaw the BoE’s financial risk framework, the operation and strategic development of its payment systems and wholesale and retail banking operations, and he was an executive sponsor for its work on fintech.

Hauser also ran Britain’s Fair and Effective Markets Review, was private secretary to the governor, and represented Britain as a member of the executive board of the IMF in Washington.

He has worked across a number of the BoE’s teams, including the secretariats for both the monetary policy and financial policy committees‎.

Treasurer Jim Chalmers and Reserve Bank governor Michele Bullock. Picture: Aaron Francis

But he doesn’t seem to have had much presence in the world of financial stability or monetary policy decision-making. Moreover, his new role at the RBA, while it will include a lot of governance work, will be primarily about what he can contribute in terms of monetary policy decision making.

It’s fair to say the role of deputy governor at the RBA will be a reasonably big promotion for Hauser when he starts at 60 Martin Place early next year.

The BoE has three deputy governors and the executive director sits between department heads and the deputy governors. His current role is essentially a level below that of deputy governor.

Its deputy governor for markets and banking sits on the UK’s Monetary Policy Committee, the Financial Policy Committee, the board of the Prudential Regulation Committee as well as attending the Court of the BoE, its governing body.

“He’s (Hauser) effectively going straight from executive director to deputy governor, which in the Australian structure is a reasonable promotion,” said one private sector economist.

Of course, Hauser would have presented at most BoE board meetings in recent years.

Interestingly, as an external member of the Financial Policy Committee, independent RBA review panel member professor Carolyn Wilkins would have had a lot to do with Hauser over the years.

One can imagine that’s been one of the venues through which Chalmers heard about him.

Traditionally, the governor has delegated a lot of the governance to the deputy, and Chalmers has said the governance board will include the deputy governor, who will also sit on the monetary policy board.

“He’s managed quite a number of people, he’s done a lot in terms of the payment system, a lot on market intelligence … so from that perspective, this is a really good deputy governor appointment,” said one industry observer. “He would be able to lead those kinds of initiatives in terms of driving cultural change … it remains to be seen. I guess that that would be the hope.”

“The second point I would make is he doesn’t really have that much monetary policy experience, so his focus has been on the market side and in planning systems and those kinds of things … very much like Michele Bullock actually, because of her experience before she was made governor.

“It’s different from that point of view, and if you think Michele Bullock has taken a more practical approach because of her background and Hauser has a similar background, maybe he will take a more pragmatic approach as well.

“Probably less theoretical and probably happier to be informed by the staff.”

Assuming all the members of the current RBA board are brought across to the yet-to-be-formed monetary policy board, Chalmers should essentially be finished in terms of new RBA appointments.

But the most interesting part of the RBA review’ impact on monetary policy setting is yet to come.

Once the monetary policy board is established, financial markets will get to see what difference it makes, having a primarily-external board whose members vote on every policy decision.

“This will be a monetary policy board that has only two internal members, and if you think about that, it’s just out there,” the private sector economist said.

Projecting a sense of unity on monetary policy setting may be one challenge for the Reserve Bank.

At every one of the post-meeting press conferences on monetary policy that will start next year, the governor is likely to be quizzed on how she voted. Financial markets will also look to inter-meeting communications by the various external board members to gauge if they’re “hawks” or “doves”.

There’s even potential for the two internal board members to be marginalised by the votes of the external board members, who might simply not have the time to take in the vast amount of input from the RBA each month. This is not something that can happen at the US Federal Reserve, the Bank of Canada, the Reserve Bank of New Zealand or the Bank of England for that matter.