He has occupied some of the loftiest posts in banking, holding the No. 2 post at the Bank of Canada, becoming one of the first and most vocal critics of U.S. subprime mortgages, and eventually landing a spot atop one of the biggest financial institutions in the world. He is, in fact, one of the most accomplished Canadians ever in the field of international finance.
And yet we know so little about Malcolm Knight.
That’s because Dr. Knight, 68, is something of a throwback. At a time when the head of the International Monetary Fund is featured in Vogue, and the Governor of the Canada’s central bank rates the cover of Reader’s Digest, Dr. Knight, who is now an adviser to the senior executives at Deutsche Bank, practises a strict separation between public duty and private life.
So a recent lunch at the Blue Duck Tavern, one of the more highly regarded restaurants in Washington, provided a rare chance to peek inside the mind of one Canada’s brightest economic exports – to find out what he thinks about the turmoil an ocean away.
He does not disappoint. While he might be selective with personal details, there is no stopping him when asked about the European debt crisis. Our waiter, who is hovering, is told to come back later. “The damage they have done to the credibility of sovereign borrowers through this shilly-shally has been quite severe,” Dr. Knight says. It’s a prescient remark, as a month later investors ignored a European promise to backstop Spain’s banks and pushed the country’s borrowing costs past 7 per cent.
We are lunching amid the roaring debate over increasing the IMF’s funding, which featured Finance Minister Jim Flaherty as the vocal leader of the camp opposed to boosting the group’s resources, arguing that the rich societies of Europe have plenty of cash to fix their own problems. Dr. Knight declined to comment directly on Canada’s stand. But he says the IMF needs more money, and he calls the public finger-pointing unhelpful. Politicians in Canada and the United States tend to forget the fact that it takes time to get things done in Europe, he says. Still, Dr. Knight is hardly an apologist for European leaders. Greece, he predicts, will have to restructure its debt again. And Europe’s go-slow approach has been, well, way too slow.
He has harsh words for the United States’ plan to strictly limit the trading activities of deposit-taking banks, calling it too complicated. And rather than seek to dictate things such as how much capital banks must hold compared to what they lend, he thinks the G20 simply should tax whatever it is they want the banks to avoid. “It’s such a simple solution that no one takes it seriously,” he says wryly.
He’s also got a bone to pick with me – a proxy for the financial press. Points of contention in the battle over austerity have been exaggerated, he says, and not enough attention has been paid to what has been achieved – namely, that the world’s regulators are doing a better job working together.
“I don’t think the dialogue is as close as it was during and after the crisis, but it is still there, and if we have problems again, it should be possible to rebuild it,” he says.
Dr. Knight knows something about financial tumult, having served at the International Monetary Fund in Washington for more than a quarter-century, taking a senior role in the fund’s European department in the 1990s, a period when former Soviet-bloc countries such as Poland were embracing capitalism and the continent’s economic leaders were designing the euro.
He returned to Canada in 1999, parachuting into the No. 2 post at the Bank of Canada, where he would eventually serve with David Dodge, one of the most influential central bankers in the country’s history.
In 2003, Dr. Knight became the first non-European to lead the Bank for International Settlements, the Basel, Switzerland-based institution that was established to handle First World War reparations and is now where 61 central banks gather to discuss monetary and financial policy. Under Dr. Knight’s leadership, the BIS was among the first to raise questions about the U.S. subprime mortgage market, and to challenge former Federal Reserve chairman Alan Greenspan’s ultra-low interest rates. Mr. Greenspan didn’t listen, giving Dr. Knight and the BIS the opportunity to help resolve the financial crisis.
These days, at an age when most would retire, Dr. Knight finds himself playing the role of honest broker in the testy debate over global banking regulation. Joseph Ackerman, the former Deutsche Bank chief executive officer who stepped aside in May, named Dr. Knight a New York-based vice-chairman in October, 2008, putting him in charge of the bank’s relations with regulators and central banks until he stepped down in March.
As we await our deserts after lunch – Dr. Knight had the lobster salad with avocado, grapefruit and honey citrus vinaigrette, while I chose the seared lemon pepper tuna – I try to get him to open up a little more about his private life.
Dr. Knight asks for a scoop of pear sorbet. He also wants an herbal tea, but is having trouble comprehending a list that includes options such as “Emperor’s Himalayan Lavender” and “2003 Ancient Golden Leaf Pu-Erh.” The waiter is equally confused, so Dr. Knight rolls the dice on a cup of Himalayan Lavender. “I hope it’s not some kind of psychedelic thing,” he says. I go for peanut butter ice cream and an Americano.
I learn Dr. Knight is still a small-town boy at heart. He says Basel is a “hidden gem,” and he loved Ottawa. He still has cottage on Quebec’s Lac Grand in the Outaouais. New York gets a backhanded compliment. “It’s a great place to work,” he says.
But the thing that’s really bugging me is what happened back in 2000 when the top job at the Bank of Canada went to an outsider for the first time in its history. The reporting at the time said Dr. Knight took the decision badly, yet all the stories were based on conjecture. I could find no evidence that Dr. Knight was ever given the chance to go on the record. I offer him that chance now. “I won’t do that,” he says.
Born April 11, 1944, in Windsor, Ont. and raised in nearby Amhertsburg.
Education: BA (honours) in economy and political science, University of Toronto, 1967.
MSc in economics, London School of Economics, 1968.
PhD in economics, LSE, 1972.
1971-75: Assistant professor and lecturer at U of T and LSE.
1975-99: Various positions at International Monetary Fund, including deputy director of Middle East and European departments.
1999-2003: Senior deputy governor, Bank of Canada.
2003-2008: General manager and chief executive officer, Bank for International Settlements.
2008-March, 2012: Vice-chairman, Deutsche Bank Global Group.
Currently: Adviser, Deutsche Bank; director, Swiss Reinsurance Co.; visiting professor in finance, LSE.
He and wife Amy have three grown daughters and two granddaughters.
They keep a cottage on Lac Grand in Quebec, near Ottawa.
He has a fondness for the arts and is a member of the board of the Visual Arts Center of New Jersey, a contemporary art school and gallery in Summit, N.J.
Awarded an honorary doctorate by Trinity College, University of Toronto, in 2006, and was inducted as a member of Johns Hopkins University’s School of Scholars in 2007.
Serves on the boards of the International Valuation Standards Council and the Global Risk Institute in Financial Services. Chairs the board of patrons of the European Association for Banking and Financial History.
Drawing and painting
“We have to face the fact that a lot of the fundamental volatility is from uncertainty about government policies because in many countries government policies aren't sustainable. If they aren’t sustainable, they are going to have to change. If the market doesn’t know how or when they will change, it causes volatility. I watch it every day.”
Editor's Note: Malcolm Knight has said that in many countries, government policies are not sustainable. Incorrect information appeared in an earlier version of this article.