The Goldman Sachs alumni network of high-ranking officials has added a new member to its Canadian chapter.
Bank of Canada Governor Mark Carney has tapped former colleague Tim Hodgson from the powerhouse investment bank that has frequently supplied members to a group of financial industry fixers around the world.
Mr. Hodgson, currently chief executive officer of Goldman’s Canadian operation, will spend 18 months as a special adviser to Mr. Carney beginning in September, the Bank of Canada said.
His background and personality traits likely put him in good stead to push the central bank’s wish-list through the warren of competing interests on Bay Street, observers say. He will work with regulators and financial institutions on new rules for derivatives and new standards for the capital that banks must hold in reserve to cushion themselves against disaster.
Over the past few years, more than a dozen former Goldman executives have been plucked from the most profitable firm in Wall Street history for posts around the world in government and the financial sector. They include former U.S. treasury secretary Henry Paulson and Bank of Italy Governor Mario Draghi, as well as John Thain, who was hired in late 2008 to take over troubled Merrill Lynch & Co., and Robert Steel, who was lured from Mr. Paulson’s Treasury to try and resuscitate Wachovia Corp.
Before entering government service, Mr. Carney spent 13 years at Goldman – whose U.S. unit is the most profitable firm in Wall Street history and is currently fighting civil charges by the U.S. Securities and Exchange Commission alleging that it cost a group of investors about $1-billion (U.S.) by selling a complex housing-related investment that was designed to fail.
Mr. Hodgson, who Mr. Carney worked with for two years at Goldman in New York, will also be the central bank’s senior representative in charge of communicating with market players, a job seen as crucial for ensuring that new rules are adequate, workable and don’t unintentionally create new loopholes or shadows.
“If you want to catch mice, then you need someone who really understands how the mice think and act,” Ian Lee, who runs the MBA program at Carleton University in Ottawa, said in an interview.
The appointment came the same day that the Swiss-based Bank for International Settlements named Mr. Carney as chair of a key central bankers’ forum on the global financial system, underscoring the growing emphasis at the Bank of Canada on stability in markets and trading, even though it has no formal regulatory role. Canada is working with its Group of 20 partners to design a new set of rules to have derivatives trade through clearinghouses, to make transactions more transparent and prevent the kind of financial-system meltdown that occurred in 2008 when credit markets froze up because banks around the world didn’t trust each other’s solvency.
Louis Gagnon, who teaches finance at Queen’s University in Kingston, said Mr. Hodgson’s appointment “couldn’t come at a better time” and that Mr. Carney is “surrounding himself with key people who will be able to assist him in bringing about meaningful reforms to the financial system, not only within our borders but globally.”
The issue of the Bank of Canada placing more and more emphasis on the financial system is somewhat sensitive in policy circles because while systemic oversight in Canada is nominally handled by a committee that includes the central bank, explicit regulatory authority is in the hands of the Finance Minister and the Office of the Superintendent of Financial Institutions.
According to Prof. Lee, while agencies like OFSI will continue to play their parts, “the heavy lifting and deep thinking” on financial-services regulation will be undertaken more and more by the central bank.
“It is not a secret that the Bank of Canada wants to play an even more important role than in the past concerning financial services policy and regulation, more similar to the role played by the U.S. Federal Reserve or the Bank of England,” he said. “To do that, you have to have the heavy hitters who really understand these issues deeply.”
According to Jim Beqaj, a former securities industry executive who is now a recruiter working with top-level securities industry professionals, Mr. Hodgson is “well-loved by clients and an unbelievably relentless worker.”
Bruce Rothney, an investment banker who was recently named head of Barclays Capital in Canada and who has known Mr. Hodgson for years because they both come from Winnipeg, attended the University of Manitoba and worked together at Goldman, said he has “a very strong intellect and a lot of experience to throw at the job.” In addition, “he’s a selfless guy who’s made his money, so he can do some things he wants to do and contribute in a different way.”
Bank of Canada spokesman Jeremy Harrison said the choice of Mr. Hodgson will build on the central bank’s in-house policy analysis and “conceptual approach.”
“What Tim brings is his broad background in markets and execution of initiatives,” Mr. Harrison said. “His ability to engage with the industry will support the momentum toward resolving these complex issues.”
