Question: Are you looking forward to the Iqaluit summit?
Answer: Not to such a long flight. I thought I was pushing my luck when I got the G20 ministers to go to St. Andrews, Scotland. I've never been in the Arctic in my life - I've seen it from an airplane now and again, so there's that. But when I start seeing the temperature and they're telling me to cover my face and my skin lest it get burnt in the cold - ugh.
Q: What direction should bank regulation take? The Canadian Finance Minister is going to be pushing for more robust capital and reserve requirements, possibly beyond Basel II. The Obama proposal involves disaggregating banking functions and restricting proprietary trading. Are you backing either approach?
A: There is a real sense that we need to make reforms, and I think there are a couple areas in particular where there is a pretty unanimous view as to what needs to be done. One is in relations to the adequacy of the capital that banks hold - we need to make sure that the capital held is commensurate with the risk that banks are undertaking. And that's a view that's held on both sides of the Atlantic - in Canada, the States, ourselves and France and Germany.
I think there's also a fair amount of agreement that we need resolution plans so that if banks get into trouble, we know in advance which regulator we deal with, and which countries would take responsibilities for which parts, and critically who would pay for it.
I believe that because there's broad agreement on that, and we reached agreement last year, we need to get on with it.
I think there are issues where we're going to need some further debate.
For example, we proposed last December that we might look at an international levy, sort of an insurance fund. Paul Volcker [former U.S. Federal Reserve Board chairman]has suggested something similar.
Q: You mean a transaction tax?
A: It would be a matter of debate whether it would be a transaction tax or a levy on wholesale deposits - the principle, I think, is the same. But there would need to be a lot of work done; it would have to be international, otherwise people would simply go offshore. And you'd also have to have agreement, to avoid double taxation, about who was holding this fund, what it was supposed to cover - that would take time.
And equally, if you look at the Volcker proposal in relation to proprietary trading - as he said in his testimony to a congressional committee earlier this week, this is something you'd have to get international agreement upon.
Q: Are you interested in that at all?
A: One of the things we said in the consultation document is, if you look at our banks, most of them are not a big problem - with RBS [Royal Bank of Scotland]for example, proprietary trading is about 1 per cent of their profits.
But it's one of a range of things that the general principle is, if you get into risky activity, you need to hold sufficient capital so that if it goes wrong, you've got a buffer to fall back upon.
Q: Can British banks be split by function as Obama proposes?
This is a different proposition.
I think the concept of 'too big to fail' misses the point. Remember the US banking system is different - they've got 3,000 retaol banks providing most of their credit; we've got six that provide 80 per cent; in Canada I think the position is about the same.