In international finance, reputations are made on the big call. Get a bold prediction right and you might become a legend. Blow it, as Alan Greenspan did, and you’ll be a goat.
Mark Carney began making his reputation as economic policy maker quickly – on March 4, 2008, to be exact, only a month after taking over as the Bank of Canada’s eighth Governor. Faced with the first tremors of a recession in the United States, he did something unexpected, slashing the bank’s key interest rate by half a percentage point. Six weeks later, he cut deeply again.
The moves caught most everyone off guard. It was a break with the central bank’s usual cautious approach to changing the cost of money. But it was also out of step with what the better-known, more powerful central bankers were doing. They didn’t see the same risks he did; as late as July of that year, Europe’s central bank was still increasing rates.
Mr. Carney, through the most powerful tool he has, was sending a message: The U.S. housing collapse is serious and financial markets are telling us the outlook is bleak. Get ready for tough times. It demonstrated that Canada’s new central banker had an unusually firm grasp of how markets work and the special dangers they carry in a globalized economy – and also the self-confidence to go with his gut and run away from the pack.
“He really made a name for himself in 2008,” Sophia Drossos, a New York-based currency fund manager at Morgan Stanley, said of Mr. Carney’s interest rate cuts. “It was Mark Carney’s wake-up call to the global central bankers that the U.S. mortgage crisis was everybody’s problem.”
It took another six months and the September collapse of Lehman Brothers Holdings Inc. for most others in the global financial world to catch up. But they’re paying attention now. They’re practically hanging on Mr. Carney’s every word.
As his reputation has grown, so has his influence, far beyond that of a typical Canadian central banker. Within weeks, Mr. Carney is expected to be tapped to lead the Financial Stability Board, an international committee of policy heavyweights that aims to prevent the sort of reckless lending that brought the world’s largest financial institutions to their knees in 2008 and almost caused another depression.
For the man who helped steer Canada through the recession, the next mission is to try to save the world’s banks – from themselves.
No Canadian has ever held the top job at an institution with such global reach. Former trade minister Roy MacLaren was nominated to head the World Trade Organization in the late 1990s, but did not get the job. Donald Johnston headed the Organization for Economic Co-operation and Development, but that group has less scope. The FSB, which been asked by the Group of 20 nations to rewrite the rules of international finance, has the potential to grow into something on par with the other pillars of post-Second World War finance – the International Monetary Fund, the World Bank and the WTO.
The job would also make him a target – something he already saw a glimpse of when Jamie Dimon, the powerful chief executive officer of JPMorgan Chase and Co., launched a tirade against Mr. Carney during a private meeting in Washington last month with several titans of global finance that the central banker had been invited to attend.
Mr. Dimon was upset about a number of reforms that Mr. Carney has championed – namely, the idea of placing different rules on banks that are so big their failure could cripple the world financial system, and forcing them to carry an extra cushion against losses. Such rules, the banker argued, discriminate against huge American banks such as JPMorgan and would harm the economic recovery by leaving them less money to lend.
But for all the gravitas and importance attached to the FSB’s top job, it is a part-time gig with no compensation and no real power to force national governments to implement certain policies. It doesn’t even have any full-time employees of its own; its staff of barely 20 people is all on loan from the Bank for International Settlements or from member governments.
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