Mark Carney is wielding new power that puts him at the heart of the global effort to prevent another market meltdown, and in a strong position to “name and shame” countries that fail to do their part.
The Bank of Canada Governor is expected to be tough in his role as chairman of the Financial Stability Board, the Switzerland-based body that brings together central bankers and regulators from more than 20 of the world’s leading economies.
By naming Mr. Carney Friday at their summit in Cannes, leaders of the G20 sent a message to regulators and supervisors that they are serious about reform. At the same time, they are boosting the body’s clout and resources so it can be more effective as it pushes national governments to implement reforms that they promise to adopt.
“I do not think that the FSB will have any real enforcement powers,” said Edwin (Ted) M. Truman, a senior fellow at the Peterson Institute for International Economics in Washington. “However, an enhanced FSB with more resources and institutional independence will be in a stronger position to ‘name and shame’ countries that fall short.”
Mr. Carney, who will continue as the Bank of Canada Governor, will be joined by a vice-chairman, Philipp Hildebrand, a friend of his from Oxford University who also heads Switzerland’s central bank and was the only other declared candidate for the job.
“Both Carney and Hildebrand have reputations as tough,” said Mr. Truman, who was a top Treasury Department official during the Clinton administration and for a few months in 2009.
In addition to what Mr. Truman called the FSB’s “beefed-up leadership,” the G20 moved the group a step closer to being able to ensure that its proposals are adopted. The leaders said in the communiqué at the end of their two-day summit that they have “agreed to reform the FSB to improve its capacity to co-ordinate and monitor our financial regulation agenda.”
This includes giving the FSB legal status and “greater financial autonomy.”
They also said they plan to identify “systemically important non-bank financial entities,” such as the money market funds and other entities that currently escape most regulation, part of a so-called shadow sector that Mr. Carney has repeatedly said must be reined in.
On Friday, the FSB published an initial list of 29 banks – none is Canadian – considered so big and interconnected that their failure could cripple the global economy. As chairman, Mr. Carney will play a leading role in nudging the jurisdictions where those banks reside to supervise them more closely and to make sure they keep more capital in reserve.
Mr. Carney is the first Canadian to hold a position of such global reach, and his appointment was viewed by analysts as a reflection not only on him but also on Canada’s relatively smooth emergence from the 2008-09 crisis, which officials around the world attribute to sound banking regulations and the Governor’s performance at the central bank.
Mr. Carney said in a statement that the appointment “reflects the strong reputation of Canada’s financial system and the leading role that Canada has played in helping to develop many of the most important international reforms.”
Finance Minister Jim Flaherty has been lobbying for Mr. Carney’s appointment since July, said one official familiar with Harper government’s campaign, phoning his counterparts around the world, as well as International Monetary Fund chief Christine Lagarde and Mario Draghi, who previously held the FSB post and now heads the European Central Bank.
Duelling with bankers is one thing. Getting member governments to fully and consistently buy in to reforms and demand that they be implemented will still be a big challenge.
“Nobody can tell a government what to do if it doesn’t want to do it,” said Jo Marie Griesgraber, executive director of the Washington-based non-governmental organization New Rules for Global Finance, one of the few groups that studies the FSB closely. Unlike the World Trade Organization, for instance, the FSB is not governed by a treaty that supersedes national laws, she said, but the changes nonetheless bring it “up a notch.”