Mark Carney already ranks among the world’s staunchest and most respected advocates of tougher global financial rules. But his new job as Governor of the Bank of England will undoubtedly provide a more influential pulpit and more direct hands-on experience in the daunting regulatory trenches.
Next July, soon after Mr. Carney moves into his new quarters on Threadneedle Street, the bank will assume regulatory powers over Britain’s banks that currently reside with the Financial Services Authority. Besides overseeing monetary policy at a time of severe economic distress, Mr. Carney will have his hands full dealing with institutions still trying to fend off legislative efforts to safeguard their retail business from riskier, excess-prone but more profitable investment banking.
Mervyn King, the outgoing Governor, strongly supports “ring-fencing” of everyday banking from more speculative activities to reduce the risks of another financial meltdown, which cost British taxpayers billions in bailouts and from which the fragile financial system has not yet recovered. But Mr. King warned last week that the Bank of England cannot police this on its own, in the absence of clear parliamentary oversight.
Mr. King told the Banking Standards Commission that Parliament should review the safeguards “in three, four, five years,” rather than relying on the central bank watchdog to ensure banks aren’t “burrowing under” the fence.
Mr. Carney brings a keen appreciation of the regulatory challenges to his new job. Indeed, they are of paramount interest to him and may well constitute a more lasting legacy than his capable steering of monetary policy. As head of the global Financial Stability Board, which was set up by the G20 countries to develop a set of rules for the closely interconnected global banking universe, he is deeply involved in post-crisis reform efforts. Canada’s stellar record in protecting its own financial system from the most damaging effects of the global meltdown has greatly helped his credibility.
But the reform efforts have sputtered as governments have returned to their former patterns of zealously protecting the interests of their own institutions, and major banks are again throwing around their weight and lobbying clout to blunt, delay or eliminate tougher regulations, including more stringent capital requirements, stronger risk management and greater transparency.
Now, Mr. Carney gets control of a more powerful and influential central bank, one that's at the heart of the global financial system, and an opportunity to usher in the financial sector reforms about which he cares so passionately. Last year, he got into a headline-making contretemps with JP Morgan chief Jamie Dimon, who launched into a closed-door tirade over what he called “anti-American” global reforms designed to punish the biggest banks, including his own
Mr. Carney dismisses the criticisms as utter nonsense, pointing out that forcing banks to hold more capital and reduce risks is better for the banks and the economy. And he fully intends to maintain the drive for timely reform. No one can ever accuse him of ducking an important fight.