UPDATE 7-Canada's Carney named as surprise Bank of England chief

* Carney heading "to where the challenges are greatest"

* UK financial reform must be completed - Carney

* Carney to continue setting global banking rules

* Departure is "bitter-sweet" for Canada - Flaherty

* Carney didn't apply for the BoE job

(Adds salary, clarifies time frame, paragraphs 6, 11)

LONDON/OTTAWA, Nov 26 (Reuters) - Britain named Canadian

central bank chief Mark Carney on Monday to head the Bank of

England, springing the surprise choice of a foreigner to push

reform of its troubled financial system.

A former Goldman Sachs investment banker who at the Bank of

Canada guided the Canadian economy through the global economic

crisis, Carney will succeed Mervyn King who retires in July.

Carney, who already plays a leading role in setting global

banking rules, defended his departure from Canada and signalled

that bigger problems awaited him in London.

"I'm going to where the challenges are greatest," he told an

Ottawa news conference, stressing the need to "rebalance" the

economy which has relied heavily on a financial services sector

hit by huge losses and scandals.

"It's very important for the global economy that the UK does

well, that it succeeds in this rebalancing of their economy,

that the reform of the British financial system is completed,"

he said.

Carney will become the first non-British head of the central

bank in its 300-year history, beating hot favourite BoE deputy

governor Paul Tucker to the post, which will pay a salary of

624,000 pounds ($1 million). Th e Bank of Canada does not

disclose Carney's exact salary but says he is paid in a range

equivalent to US$436,200-$513,000.

During the crisis, Carney helped to make Canada's recession

one of the shallowest of the world's richest nations. No

Canadian bank needed government help, and the country recovered

all the jobs it lost in the downturn relatively rapidly.

By contrast, Britain had to bail out Royal Bank of Scotland

and Lloyds Banking Group, and the world's

sixth-largest economy is still struggling to achieve growth four

years after the crisis broke.

Carney, 47, will remain as head of the Financial Stability

Board (FSB), a Basel-based body that sets global banking rules,

when he moves to London next year, although the Bank of Canada

itself does not regulate the country's banks.

"I believe he will bring the strong leadership and external

experience that the Bank (of England) itself needs as it takes

on its heavy new responsibilities for regulating our banking

system," Chancellor of the Exchequer George Osborne, the finance

minister, told parliament in announcing the appointment.

Carney will stay at the Bank of Canada through May, and

starts at the Bank of England in July. He will serve a five-year

term, rather than the eight years that had been expected for the

next BoE governor.

From next year the BoE will take charge of British financial

regulation, almost doubling its size. This boosted the case for

a governor with strong management skills and financial market

experience, rather than someone in King's academic mould.

Carney's past as a Goldman Sachs investment banker has been

a double-edged sword, as he fought to prove his loyalties lie

with ordinary citizens, not his high-flying banker

ex-colleagues. He clashed memorably last year with JPMorgan

Chase & Co Chief Executive Jamie Dimon in Washington, when the

U.S. banker argued against new regulations for the financial

sector.

DEAD MONEY

Carney also courted controversy in August when he accused

Canadian firms of sitting on piles of "dead money", rather than

investing it. Large British companies also have money to invest,

but little appetite to do so at a time of strong economic risks.

How Carney's monetary policy experience will translate to

Britain is less clear. Although the Bank of Canada has raised

interest rates, unlike the BoE, economists said this reflected

Canada's strong economy rather than a bias on Carney's part.

"Pragmatic is how I'd describe him," said Derek Burleton, an

economist at Toronto-Dominion Bank. "He doesn't come across as

an ideologue one way or the other."

Under King, the BoE has poured 375 billion pounds into the

economy by buying government bonds. The Bank of Canada has not

used this policy of "quantitative easing" largely because its

economy never weakened enough to warrant it.

Until now, Carney had strongly played down the possibility

of heading the British central bank. "(It's a) surprise, huge

surprise," said Peter Dixon, an economist with Commerzbank.

"That was the one guy I didn't have in the running.

Carney said he did not apply for his new job as part of the

formal process, and discussions intensified only in the last two

weeks.

He has already spent a decade in Britain as a postgraduate

student at Oxford and at Goldman Sachs - where European Central

Bank President Marin Draghi also once worked. Carney, whose wife

is British, will apply for citizenship, Osborne said.

Carney pointed to the steady state of Canadian banks, which

also contrasts to some of those in Britain that have been sucked

into scandals over rigging the Libor interest rate and

mis-selling financial products to people who didn't need them.

"We have a system that works very well. It's been tested

under the biggest economic shock and financial shock that any of

us will ever see in our lifetime, and it has passed that test,"

he said.

His job has been helped in recent years by booming prices

for Canada's commodities exports from oil to gold and grain.

The still-athletic Carney - a sub-four-hour marathon runner

- was once described as "un-Canadian" by one Ottawa official

because of his sometimes confrontational style.

Canadian Finance Minister Jim Flaherty expressed the mixed

feelings in Ottawa about Carney's departure. "It's bitter-sweet.

It's our loss. His loss will be felt," he said.

The foreign exchange market passed a similar judgment with

sterling rising against both the U.S. and Canadian dollars. The

pound hit to a 2-1/2 week high against the Canadian dollar

to C$1.5950 from C$1.5898 beforehand.

(Additional reporting by Matt Falloon and Kate Holton in

London, and David Ljunggren and Louise Egan in Ottawa; Writing

by Maria Golovnina; Editing by David Stamp and Alastair

Macdonald)

Most Popular in Business