Bank of Canada Governor Mark Carney took a stand against the international bank lobby, calling arguments against increased financial regulation “questionable,” and ridiculing the notion that new rules will only be avoided as fatalistic.
“In no other aspect of human endeavour do men and women not strive to learn and improve,” Mr. Carney said in a speech Sunday morning to the International Institute of Finance. “The sad experience of the past few years shows that there is ample scope to improve the efficiency and resilience of the global financial system.”
The IIF, which represents hundreds of international banks, is pushing back against the Group of 20's financial regulatory agenda, saying authorities risk constraining the economic recovery by forcing financial institutions to keep more cash in reserve. The IIF estimates that if all planned rule changes are implemented, economic output by 2015 will be cut by 3.2 per cent, costing 7.5 million jobs.
Mr. Carney rejected this argument.
Research by authorities, including the Bank of Canada, concludes that stronger regulation will boost economic growth over the longer term by bolstering confidence in the financial system and reducing the risk of crises.
Mr. Carney noted that banks have until 2019 to comply with new rules, a window that many critics of the financial industry say is too generous.
“It is difficult to believe that prolonging this implementation phase even further would have material impact on real economic outcomes,” Mr. Carney said. “If some institutions feel pressure today, it is because they have done too little for too long, rather than because they are being asked to do too much, to soon.”
The IIF says it broadly supports the G20's new regulatory initiatives, which are commonly referred to as Basel III because the rule writing is done by the Basel Committee of international regulators and this is their third attempt at a comprehensive set of guidelines.
However, the bank lobby says it many regulators are moving too quickly, and in an ununiform manner, creating disincentives to lend and an uneven playing field.
Rick Waugh, the chief executive officer of the Bank of Nova Scotia and vice-chairman of the IIF's board of directors, defended the group's contention that regulators are acting too aggressively.
"There is no doubt in our minds that banks have to lend to contribute to the economic recovery," he said.
Calling the level of new regulations that banks face "huge," Mr. Waugh said it "doesn't make much common sense" to advance with such a strict regulatory regime at the same time governments are fighting to reduce unemployment.