Sir Jon Cunliffe, deputy governor for financial stability at the Bank of England, speaks to The Review about Covid-19, crisis management, and career highlights
by William Monroe
Sir Jon Cunliffe’s route into finance is unusual. Having studied English at the University of Manchester at both graduate and master’s level between 1972 and 1976, and after a four-year stint as a lecturer in English literature at the University of Western Ontario, Canada, he embarked on his ambition to become a theatre director, achieving a place to study directing at the Bristol Old Vic Theatre School. A proposed grant for Jon to study at the school fell through, however, and, having previously turned down a placement on the Civil Service Fast Stream in favour of progressing his theatrical ambitions, he applied to become a public servant once more, and was accepted onto the Fast Stream. Initially, the plan was to return to theatre, and he continued to do amateur and semi-pro performances, but gradually he became immersed in his work with the Civil Service.
Today Sir Jon, as deputy governor for financial stability at the Bank of England (BoE), is playing a role in directing a different kind of drama as the bank – and the UK economy – continues to absorb the shockwaves from the pandemic-induced economic downturn.
Formative yearsHis first role in 1980 was in the Department of the Environment, where he had a hand in working on EU environmental policy, which was then still in its formative years. He was also part of the team that set up English Heritage.
He then served as private secretary for the chief executive of the Property Services Agency, the body that managed all UK government property between 1972 and 1993. Between 1985 and 1988, he served as private secretary to three Secretaries of State for Transport where, among other things, he worked on the Channel Tunnel project.
His next post, this time in the Treasury, saw him become head of the Civil Service Treasury pay team in 1990. This was his first step into the world of finance, and a key period in terms of honing negotiation skills that were to prove critical in the years to come. Here he cut his teeth on pay negotiations with trade unions, including the GMB – a general UK trade union encompassing all industries and sectors – in relation to pay for 200,000 civil servants. "That was the best negotiation training I ever really had. In those days you didn’t get formal training," he says. "Negotiating with trade unionists you learnt an awful lot."
He decided to stay in the Treasury after he was offered the chance to head up its International Financial Institutions team in 1993. "At that time all the work was around the collapse of the Soviet Union and the emergence of new countries and economies. That’s how I got into finance. I had no background in it, and I had to learn pretty fast." Sir Jon recalls being sent on a course, which incidentally was run by the BoE, at Birkbeck, University of London. His aptitude for picking up new concepts quickly – evident in his early years in the Civil Service – was again vital, given that it was a three-year undergraduate economics course squeezed into just four months of full-time study.
Between 1993 and 2007, Sir Jon worked in various posts at the Treasury, including director of European Economic and Monetary Union (EMU) and monetary policy (1996–1998), director of international finance (1998–2001), and managing director (2002–2007).
Sir Jon is at pains to point out that the current crisis originated outside of the financial sector
He then returned to private office, as prime minister’s adviser on Europe and global economic issues, while he was also responsible for leadership of the Cabinet Office as second permanent secretary. A position as the UK’s permanent representative to the EU followed, before he took up his current post at the BoE in 2013.
His role incorporates responsibility within the Bank for financial stability, as well as the supervision of financial market infrastructures and international issues. He is also a member of the Financial Policy (the body responsible for monitoring the UK’s economy) and Monetary Policy Committees, the Bank’s Court of Directors and the Prudential Regulation Committee.
Dealing with crisesSir Jon’s negotiating skills were put to the test when helping to shape the international response to the global financial crisis of 2007–2008. In his role as the prime minister’s adviser on Europe and global economic issues, he worked closely with Gordon Brown in reacting to a crisis that he likens to the detonation of a bomb. "This was a global systemic crisis and had to be treated as such," he says. "The crisis originated in the US but there were vulnerabilities all around the advanced economies. It needed a big international response, and it was my job, working with Gordon, to do that."
"Consider what would have happened if we’d gone into March with thinly capitalised banks, with the vulnerabilities that they had in 2007 ... I’m pretty sure we would be dealing with failing banks right now"
Sir Jon was heavily involved in preparations for the G20 London Summit in April 2009, where international leaders pledged to implement a "global solution" in order to bring the world economy out of recession and safeguard against a future crisis. Sir Jon’s role was to act as sherpa (a personal representative of a head of state/government who lays the groundwork for international summits) to Gordon Brown. "The G20 existed as a forum for finance ministers and central bank governors, but we had to translate that into the leader level," he explains.
Does this experience stand him in good stead then to tackle the response to the current economic downturn, in terms of his responsibility for financial stability in the UK? Sir Jon is at pains to point out that the current crisis originated outside of the financial sector, while he also notes that it happened at a much faster speed. "You had a whole year of the financial system seizing up over 2007–2008, domestically and internationally, and then the crisis point arrived. This crisis hit us from out of a relatively clear blue sky. The experience is not as directly relevant as dealing with the bomb that went off in the global financial system. But knowing how the international system works, and how it needs to be mobilised in a crisis so that you get the benefit of international coordination, has helped in this crisis."
Resilience, regulation, and silver liningsOn 9 June 2020, Sir Jon gave a webinar speech to the UK Investment Association in which he highlighted that the objective of global reforms over the past ten years was to ensure that any future shock was not amplified and made worse by weaknesses in the financial system, and, in turn, to ensure that the financial system is able to support the real economy and dampen the shock of what he terms ‘tail events’ amid a crisis.
Sir Jon’s top tips for young professionals
"The most important thing is to be curious and to learn. The world has moved, quite rightly, towards professionalism and training, but human beings have the ability to learn and to translate skills from one area into another. If you are curious and have the will to learn you can take the skills learnt in your professional training and apply them elsewhere.
"Don’t just have narrow, vertical ambitions, have broad ambitions and take opportunities. That will take you into new areas where you can develop your career. I would say that, given my CV, but there is a benefit in people having a range of experience where they can bring different perspectives and experiences into play – and you need a mix of the two."
How does he feel the global financial system as a whole is faring against those benchmarks amid the pandemic landscape? "I think overall it’s done a good job," he says. "But you have to look a little bit more closely under the bonnet at the different parts of the financial system." He identifies the UK’s banking system as a particular success story, highlighting that it has withstood the "huge shock" it faced at the outset of the pandemic when the country’s banks were faced with 30 times the normal demand for corporate credit in March 2020. "You only have to do a thought experiment and consider what would have happened if we’d gone into March with thinly capitalised banks, with the vulnerabilities that they had in 2007," he says. "I’m pretty sure we would be dealing with failing banks right now."
Parts of the global financial system, however, have fared less well. Sir Jon highlights "very destabilising" market-based activity in March 2020, when investors and investment funds scrambled towards safer assets as they attempted to incorporate the shock of the crisis into investment strategies. Amid what Sir Jon terms a ‘dash for cash’, central banks were forced to step in and take unprecedented action in order to stabilise markets and stop the interest rates faced by the real economy shooting up. In the UK, the BoE’s Monetary Policy Committee (which Sir Jon is a member of) increased the stock of asset purchases by £200bn, and bought gilts, to the tune of almost 10% of UK GDP, at the fastest possible operational rate, while the European Central Bank launched a €750bn Pandemic Emergency Purchase Programme in March.
Sir Jon says that the BoE had feared such a "fire-sale" scenario for a number of years. "We’d had some warning signs that might happen in the past. Now we’ve had a serious experience of it. Central banks came in very quickly to deal with it. That’s one of the lessons we learnt ten years ago – you don’t wait when faced with something like this."
However, something of a silver lining can be found in that it has served to heighten the need for tighter regulation in market-based finance. Securities and markets regulators have a remit to ensure that markets protect investors and function with integrity, but they don’t have a macroprudential mandate for the financial system as a whole. "That gap has been there for a while. It’s been identified. That kind of systemic impact, where all the parts of the system interact under stress, has now become much clearer. The crisis has concentrated minds and will enable us to address these issues in a way that probably wasn’t possible before." As a case in point, the Financial Stability Board (FSB) published, in November 2020, a comprehensive review of the provision of market-based finance in light of the Covid-19 shock.
Crisis management – and career highlightsAs far as crises go, Sir Jon has faced his fair share of career pressure-cooker moments, and his experience of acting as a sherpa ahead of the 2009 London Summit ranks high on this list. "The world economy was in danger of going into a depression rather than a recession. That summit made a huge difference in demonstrating international will to tackle it from the 20 largest economies in the world. Getting the necessary agreements was probably the most intense crisis experience in my life."
He identifies the current crisis, however, as a challenge equal to anything thrown at him in those critical days and weeks leading up to the London Summit. "With a crisis, you tend to run on adrenaline for a while, but you can’t carry on doing that indefinitely. Then resilience becomes very important. In terms of the challenges over the period of a crisis this one is probably the greater, because it’s added that complete change of working environment."
Other career highlights include the part played in the reformation of debt management in the UK, which included the establishment of the Debt Management Office, while he was director of EMU and monetary policy in the Treasury. He takes pride in helping to establish the FSB and English Heritage, while he also considers himself "lucky to play a role" in the BoE’s Financial Policy Committee. "The fact that we have that machinery is certainly a highlight for me – we’ve been able to use it in good times and bad."
The full article was originally published in the February 2021 flipbook edition of The Review.
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