More recently, Mr. Carney has been in the thick of frantic efforts by policy makers to contain the European debt crisis, floating some very specific proposals for boosting the euro zone’s bailout fund in public appearances and in private conversations with his counterparts. At a gathering of G20 central bankers and finance ministers last weekend in Paris, he pressed European policy makers to more than double the euro zone bailout fund, from €440-billion ($615-billion) to more than €$1-trillion.
On the eve of the Paris meeting, he caused a stir by endorsing the Occupy Wall Street Movement in an interview with CBC’s Peter Mansbridge, calling the demonstrations an “entirely constructive” expression of frustration with the global economic and financial system and saying they highlight the need for policy makers to show they are serious about forcing change.
Such comments speak to Mr. Carney’s ambition to be an important actor on the global stage, which is part of why he left behind millions of dollars in salary as an investment banker to join the public service – and why he is open to the FSB role.
The global crisis in 2008 revealed that financial markets can have a major impact on what happens in the real-world economy – not just the other way around. That suggests there is a crucial role in the future for financial regulations that are crafted with the aim of avoiding another market-driven economic catastrophe that drives up unemployment and hurts incomes.
Mr. Carney has championed this idea for years, rejecting the notion that periodic financial crises are simply a natural part of economic life and cannot be avoided. In other words, he thinks that policy can make a difference – can help create a more stable global economy. Leading the FSB would put him at the forefront of ensuring that governments embrace that thinking, too.
So far, Mr. Carney has said little about the specifics of what he would do with the job. But his views are well known on some key issues facing financial regulators.
He is a proponent of requiring very large banks to hold extra capital – that is, to make them financially stronger and less likely to fail. But he also wants to devise ways to deal with the collapse of such institutions, so they don’t wreak the sort of chaos in credit markets and the economy that Lehman Brothers did.
The reason the U.S. government was forced to bail out Wall Street after Lehman’s demise in 2008 was that not doing so would have led to disastrous consequences in the real economy – including sky-high unemployment – as the flow of credit dried up. They were too big to fail, so taxpayers had to pick up the pieces. Mr. Carney wants to find a way to structure the financial system so that a poorly-run large bank could go out of business without creating an economic crisis.
As part of that, Mr. Carney is also an advocate of cleaning up the system of trading derivatives – private financial contracts that were one of the causes of Lehman’s troubles.
But there are obstacles: The banks will fight any regulatory push that threatens their profits. And the nature of the FSB is much like the G20 itself, where national or regional interests and jealousies often get in the way of meaningful change for the collective good.
“You have to be able to convince people it’s in their own interest to implement changes, and together they have to find arguments that will win over their national legislatures,” said Jo Marie Griesgraber, executive director of a Washington-based non-governmental organization called New Rules for Global Finance, one of few groups that studies the FSB closely.
Mr. Carney declined to be interviewed and the Bank of Canada would not comment on his candidacy for the FSB. He has been considered a leading candidate since being touted for the job in a CNBC report last spring – when his name was being bandied about as a possible replacement for Dominique Strauss-Kahn at the IMF – and Finance Minister Jim Flaherty has been openly pushing for Mr. Carney to get the job.
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