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Carney will blow the whistle on misbehaving global banks

International regulators auditing countries for implementation of new rules.


August 9, 2012
by CANADIAN PRESS

OTTAWA: Bank of Canada governor Mark Carney says he is willing to blow the whistle on banks that break international norms or don’t comply with reforms designed to prevent a repeat of the 2008 financial crisis.

In a BBC interview, the Canadian central banker said recent scandals have delivered “some hits” to the reputation of the banking system, adding that it is essential that confidence be restored.

“One of the things we’re doing as international regulators … is not just designing rules but we’re auditing the countries from the UK to Canada to China to see whether they’re actually implementing these new rules,” he said, speaking in his dual role of head of the Swiss-based Financial Stability Board.

“And if they don’t, we’re going straight to the top. We’re going to the leaders of the G20, and we’re going to the media and the general public, and we’re letting people know who’s on track and who’s lagging behind.”

He added that he believed financial institutions are complying so far with the new capital requirements and that the world is “moving in the right direction to ensure ending the problem of ‘Too Big to Fail’ ” banks so that taxpayers need not be forced to bail them out.

Carney did not directly respond to the scandals that have emerged involving mostly London banks, including the LIBOR rate rigging controversy and accusations of money laundering, other than saying they need to shape up.

“These are big, complex banks, they deal with a range of countries and a range of types of transactions, and the senior executives have to be on top of all of that,” he said. “And if they can’t be on top of all of that, they need to shed businesses and activities.”

As for Canada’s banks, Carney said they may have some exposure to record household debt levels and the overheated housing market, but he noted that high-risk mortgages are insured by the federal government.

“Our banking system is still … one of the strongest in the world,” he said. “We’ve got one of the highest capital ratios, we’ve got the lowest liquidity.” In fact, he said Canada’s banks will be able to meet the 2019 Basel capital requirements by Jan. 1, six years ahead of time.

The BBC reporter also grilled Carney on the likelihood of an interest rate hike in Canada – which he said is still a possibility if growth strengthens, but is unlikely in the short term.

“The world’s a dangerous place at the moment,” he said.

Carney said the troubles in Europe and slower growth in China, India and other emerging countries are already impacting Canada’s economy.

“It’s had a knock-on effect, commodity prices are down fairly sharply, about 15% over the course of the last several months,” he said. “There’s is an adjustment and fairly synchronized deceleration of the global economy at the moment.”

In July, the Bank of Canada downgraded the prospects for Canadian economic growth to 2.1% this year and 2.3% in 2013, citing escalating global risks. Some private forecasters have gone further, predicting growth will be below 2% for both years.

Pressed on the point of the European crisis, Carney appeared to take a softer stance on the question of whether the International Monetary Fund should help out with financial backing than Finance Minister Jim Flaherty, who has vociferously lobbied against the idea.

In a May article that appeared under the minister’s name in the London Telegraph, Flaherty defended Canada decision not to contribute to an IMF package in support of Europe because Euro Zone countries are rich enough to do the job themselves.

“In these circumstances, IMF loans are not an adequate substitute for a serious commitment by Euro Zone countries to resolve this crisis,” he wrote.

Carney does not directly contradict Flaherty and does not say the IMF should help in the bailout, but suggests that IMF loans will be “potentially” necessary to buy time for Europe to work its way out of the hole.

He said that Canada’s position is “if” IMF funding is needed, recipient nations should not be involved in setting the conditions for the loans, a position that Flaherty has also outlined.

© 2012 The Canadian Press