Andy Haldane: The coming man of British banking

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To the far left of Mark Carney at a Bank of England press conference last Thursday sat an angular man in a grey suit. Andy Haldane, the Bank's executive director of financial stability, cut a peripheral figure that day. While his boss, Carney, held forth on the thinking behind the Bank's latest Financial Stability Report, Haldane said almost nothing.

But appearances deceive. For Haldane is, in fact, very much front and centre of the Bank's programme of detoxifying the financial sector in the wake of the catastrophic meltdown of five years ago. Indeed, his reputation has soared in global central banking and regulatory circles in recent years for his needle-sharp analysis and elegant papers.

In a seminal 2010 speech, Haldane put a figure on the broad cost to the British economy of the 2008-09 crisis (possibly as much as £7.4trn). He put a figure, too, on the de facto hidden public subsidy to our largest banks as a result of their notorious "too big to fail" status (an astonishing £50bn a year). These calculations played a vital role in swinging the political debate on banking reform from "let's go back to the status quo as soon as possible" to "actually, things really must change".

Just as influential have been Haldane's radicalism and free-thinking in a central banking world where the key players are often a depressing blur of orthodoxy and conventional wisdom. Last year, Haldane praised the Occupy movement, saying that the uninvited guests in the shadow of St Paul's Cathedral were right to be hostile to the workings of the global financial system.

At the lofty central bankers' confab in Jackson Hole, Wyoming, that same year, he delivered a dynamite speech which implied that regulators around the world were barking up the wrong tree by embracing complexity rather than simplicity in their banking reform principles.

It was a speech that irked some important people in the regulatory universe, including the man who would go on to be his boss. Mark Carney, then head of the Bank of Canada, criticised the speech as "uneven". But, as so often, Haldane's analysis helped to shift the debate. And regulators around the world are, indeed, now inclining towards his principle of simplicity when it comes to ensuring that major banks have a sufficiently large safety buffer.

Crunching the numbers, assaulting the consensus, painstakingly building a new regulation framework for one of the world's most important financial centres: that's a hell of a workload. So how does the whip-thin Haldane stay in shape? "Metabolism is the answer – genes," he laughs. "My weight hasn't changed for 25 years." He claims that he doesn't do any exercise except for a game of cricket at the annual Bank of England summer barbecue, where he plays for the "Governor's Eleven", which is made up of various grandees and ex-professionals. This year, the former England captain Andrew Strauss took part.

This is one environment, though, in which Haldane, who used to classify himself as a fast bowler when he was growing up in Yorkshire, admits that he fails to shine: "Everyone's saying: 'So why's he on our team? He's not been knighted, and he's not captaining England, and he's not any good,'" he recalls.

But here's a challenge to the orthodoxy: is Haldane really "any good" even in the day job? The centrepiece of last week's event was the removal of a Bank of England subsidy for mortgage lending. Haldane is enthusiastic about the move, arguing that for the Bank to signal that it will not allow another property bubble to form (with prices currently rising at a 7 per cent annual rate) is a "sharp philosophical shift" from the pre-crisis era, when there was a strong bias against any regulatory intervention in frothy-looking markets.

But how can Haldane, or any other mortal regulator for that matter, know when a bubble is developing? The promise, in the Bank's report, to tighten credit could, potentially, make it more difficult for a young family to get a mortgage and to buy their first home in the coming years. If Haldane is wrong and there is no bubble, that family's dreams could be frustrated for no reason. So what exactly makes him smarter than the market?

By way of answer Haldane recalls his meetings in the City in 2005 and 2006, when even the financiers around the table admitted that something was terribly unbalanced in credit flows but felt unable to doing anything about it themselves: "We'd say things like: 'The price of risk looks a bit low; the quantity of risk taken looks a bit high.' And they'd say: 'Yeah, you're right.'

"Our supplementary question was: 'Does that mean you're taking risk off the table?' To which their response was: 'Well, we can't really, because it's a game everyone's playing.' They all had friends who had taken risk off the table two years previously and weren't in employment any more."

This paralysing dynamic, says Haldane, is why regulators must have the courage and self-confidence to step in and correct financial markets if they perceive a brewing danger to the wider economy. "You don't need divine insight to spot these things. I think even if you don't know everything – which you never will – you know more than nothing," he says.

Haldane points to a sobering chart in the Bank's latest report showing that recessions which follow housing busts tend to be three times more costly and considerably longer than others. "If you miss a housing boom and it turns to bust, I know what it looks like – and it's ugly," he says.

But reining in the housing market will be a challenge, especially when politicians have a vested interest in a recovery that seems to be propped up at the moment by increasing house prices. The Chancellor, George Osborne, is reported to have joked this year that "hopefully, we will get a little housing boom" in time for the 2015 general election. Many think his "Help to Buy" subsidies are designed with precisely this in mind. The Business Secretary, Vince Cable, has criticised the Bank of England for insisting that major lenders raise bigger safety buffers, dubbing them the "capital Taliban".

Will the Bank hold its nerve? "Regulation is not a popularity contest," sighs Haldane. "That much has become clear to me over the last few years. There will be push-back. There will be lobbying. Sometimes noisily, sometimes covertly. For me, that's just part and parcel of the game."

But he is confident that, ultimately, the arguments for financial prudence will prevail. "What's been very striking to me, and almost reassuring, is that analysis and ideas can make a real difference to the debate. And they have made a real difference to the debate."

He is too modest to mention that many of the ideas at the tip of the righteous spear have been generated by him. Never mind the Governor's Eleven, the rest of us should be relieved that Andy Haldane is bowling for the British public.

Curriculum vitae

1967 Born in Guiseley, Yorkshire.

1978-85 Attends Guiseley School.

1988 Graduates from Sheffield University in economics and finance.

1989 Obtains masters from Warwick University in economics; joins the Bank of England in the monetary analysis department.

1993 Becomes the manager of the monetary policy division.

1997 Researched case for the Bank's independence, which helped lead to the 1997 monetary policy reforms.

1998 Becomes head of international finance at the Bank of England.

2003 Becomes head of market infrastructure at the Bank.

2004 Publishes first book, Fixing Financial Crises in the 21st Century. He has now written three books.

2005 Becomes head of systemic risk assessment at the Bank.

2009 Becomes executive director of financial stability at the Bank.

2009 Founds charity Pro Bono Economics with Martin Brookes, director of the Paul Hamlyn Foundation, to help charities' fundraising.

2012 Speaks out in support of the Occupy movement, and cites its influence on financial reform.

Victoria Finan