* Bank of England to create new deputy governor's job
* Fisher would have been obvious candidate, now under fire
* Results of internal inquiry unlikely before next year
* Fisher might lose rate setting seat if doesn't get new job
By David Milliken
LONDON, March 17 (Reuters) - Governor Mark Carney's first big shake-up of the Bank of England could set off changes on its interest rate-setting committee, with markets chief Paul Fisher at risk of losing out.
Carney, who took over last year, had already been planning changes to the upper echelons when the central bank was drawn into a scandal over alleged manipulation of currency markets.
He is due to give details in a speech on Tuesday of his plans, which include creating a deputy governor who will be responsible for overseeing markets and banking services.
The new position, which takes the number of deputy governors to four, reflects broad powers the BoE has gained under a reform of British financial regulation since the global crisis.
Until recently Fisher - who is Executive Director, Markets - would have been an obvious candidate for the new position which covers much of his current job, albeit with expanded responsibilities and at one level higher in the BoE hierarchy.
But the BoE suspended an employee this month in an internal investigation into whether staff turned a blind eye to signs of manipulation of London's $2.1 trillion-a-day currency market.
There is no evidence of wrongdoing by Fisher, who was previously the suspended employee's manager, but he came under fire last week from a parliamentary committee over his role in supervising currency markets.
The stakes are high for Fisher. His term on the Monetary Policy Committee - where he was one of the stronger supporters of more stimulus for Britain's economy after the financial crisis - ends in May.
As a BoE executive director, this would normally be renewed automatically but if Fisher misses out on the job, he might have to make way on the committee for the new deputy governor.
Asked if Fisher or other BoE staff would apply for the new post, the BoE said it had no comment on possible candidates. It also did not comment on what impact, if any, the inquiry would have.
Fisher has said he first heard of the currency accusations only last October, and that the alleged collusion by market-makers under investigation now was different from less serious discussions about hedge funds' activity as far back as 2006.
With the results of the internal inquiry unlikely until next year, Carney might be reluctant to promote Fisher before he knows its conclusions.
Carney said the creation of the new role was not a response to the inquiry, but whoever fills it will conduct "a root and branch review of how we conduct market intelligence".
Details of the new deputy governor's role and broader changes at the BoE should become clearer on Tuesday. One of the aims is to integrate better teams of financial supervisors who joined the BoE last April, when it assumed powers to ensure the banking sector does not put the economy at risk again.
However, former Monetary Policy Committee member Andrew Sentance said he feared the new deputy governor might be given no real authority. "In my experience, all important decisions in the Bank are taken by and announced by the governor," he said.
FISHER ON THE HOOK?
Legal restrictions on whom Carney can appoint to another BoE body - the Financial Policy Committee which regulates British banks - are creating further complications. Oddly, these make it unlikely that the new deputy governor will have a vote on the committee and will attend only in an advisory capacity.
Therefore, to avoid the fourth deputy governor looking like a spare wheel compared with the three existing ones, the new post could come with a seat on the Monetary Policy Committee - although there is no guarantee of that.
Membership of the committee, on which two of the three existing deputy governors all sit, is fixed at nine. So if the new job goes to someone other than Fisher, he might be the one who has to make way for the new arrival.
Britain's finance minister chooses seven committee members, and the Treasury is expected to name a replacement for one of them - retiring deputy governor for monetary policy Charlie Bean - on Tuesday, a source familiar with the appointments process said.
Carney has the final say on the remaining two: the BoE's chief economist and an official with executive responsibility for monetary policy operations.
The latter description seems to fit the new deputy governor's position. Carney said whoever gets the job would have "the senior-most executive responsibility" for the BoE's 375 billion pounds ($623 billion) of bond holdings accumulated under its drive to help the economy recover from the crisis.
Fisher is currently responsible for the BoE's monetary policy operations.
Even without a year-long inquiry hanging over him, Carney may wish to continue his pattern of recruiting externally for senior BoE jobs. "Carney might want to get his own person from outside, to add to that impression of the Bank being shaken up and having more outside influences," said Tony Yates, a senior BoE economist until last year and now reader in economics at the University of Bristol.
Another possibility is the BoE's chief cashier and executive director for banking, Chris Salmon.
But Yates said it was far too early to rule Fisher out from a more senior role at the BoE. He also said that removing Fisher from the Monetary Policy Committee would be seen as a demotion within the bank. "If the new deputy governor takes the slot of (Fisher) ... that would be a headache for them," said Yates.
Showing how seriously the BoE is taking the foreign exchange allegations, the inquiry will be led by lawyer Anthony Grabiner, who previously investigated phone-hacking at Rupert Murdoch's News Corp.
"What the Bank is likely to be more concerned about, and the regulators are certainly concerned about, is that it would appear the systems and controls weren't sufficient to detect or deter what has happened," said Owen Watkins, a financial services lawyer at Lewis Silkin in London.
Lawmakers - who scrutinise but cannot veto top BoE appointments - were unimpressed when Fisher said last week it was the job of the Financial Conduct Authority, Britain's chief markets regulator, not the BoE, to investigate malpractice.
"This is the first real test for the BoE's new governance structures. Early signs are not encouraging," said Andrew Tyrie, who chairs the parliamentary Treasury committee. (Additional reporting by Jamie McGeever; editing by William Schomberg, Alexander Smith and David Stamp)