Bloomberg News

Carney Named to Head Financial Stability Board, G-20 Says

November 07, 2011

(Updates with Harper comment in 10th paragraph, CEO comment in 16th paragraph.)

Nov. 4 (Bloomberg) -- Bank of Canada Governor Mark Carney was named by Group of 20 leaders to head the organization overseeing efforts to write new rules for international finance that some lenders say may slow lending and hurt growth.

Carney was appointed chairman of the Financial Stability Board, the body charged by the G-20 to coordinate global financial reform and monitor progress, and Swiss National Bank President Philipp Hildebrand will be vice-chairman, according to a statement from G-20 leaders.

“I am honored to assume this new role,” Carney said in a statement posted on the Ottawa-based central bank’s website. “My 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 financial reforms.”

Carney, 46, worked at Goldman Sachs Group Inc. for more than a decade before becoming a policy maker in 2003 and then chief of Canada’s central bank in 2008. He has pushed for tougher regulations for global lenders and clashed with banking executives over new rules requiring them to hold more capital.

“He’s an independent thinker, but he’s very balanced,” Bank of Nova Scotia Chief Executive Officer Richard Waugh said today in an interview. “He’s got this great capacity to keep everything in perspective.”

More Resources

G-20 leaders also agreed today to formalize the powers of the FSB to ensure new rules decided on by leaders are implemented and to provide the organization more resources. The FSB brings together regulators and finance-ministry officials from the G-20, as well as standard-setting bodies such as the Basel Committee on Banking Supervision.

“Building on its achievements, we have agreed to reform the FSB to improve its capacity to coordinate and monitor our financial regulation agenda,” the statement said. “This reform includes giving it legal personality and greater financial autonomy.”

Carney will replace former Bank of Italy Governor Mario Draghi, also a former Goldman Sachs banker, who became president of the European Central Bank on Nov. 1. Carney’s first job will be to oversee new regulations on some of the world’s biggest banks.

The Basel Committee on Banking Supervision is scheduled to release a list of so-called global systemically important institutions following today’s G-20 meeting in Cannes, France. Banks covered by the measures face requirements to boost their reserves by between 1 percentage point and 2.5 percentage points compared with international capital rules published last year.

‘Right Appointment’

“This is the right appointment at the right time as the world works to strengthen the global financial system and sustain the fragile global economic recovery,” Canadian Prime Minister Stephen Harper said in a statement issued by his office.

Carney is among regulators who have clashed with some institutions over the additional capital rules, with Jamie Dimon, chief executive officer of JPMorgan Chase & Co., and Bank of America Corp. CEO Brian T. Moynihan among those arguing that the new requirements may harm the world’s economic recovery.

Carney has said that historically well-capitalized banks have been rewarded with better valuations.

Losses Overstated

In a Sept. 25 speech in Washington, Carney told a banking group the Basel III regulations, which need to be implemented by 2019, give countries with weaker economies time for a smooth transition. He also said research done by the Institute of International Finance overstated the potential losses to output from the new rules.

“The implementation timetable for Basel III begins in two years and ends in 2019,” Carney said in the speech. “It is difficult to believe that prolonging this implementation phase even further would have a material impact on real economic outcomes.”

Bank of Montreal President and CEO Bill Downe said in a statement Carney’s performance at the Bank of Canada “inspires confidence.”

“The banking sectors in many countries need to build capital,” Downe said. “It is critical that the new standards be applied evenly and consistently. We must have a level playing field.”

‘Policeman’ Role

In an Oct. 27 interview with CBC Television, Carney said he expects the FSB will take on more of a “policeman” role to ensure countries implement tougher financial-system rules. The FSB will also help design new regulations for market-based financing, so-called shadow banking, he said.

Authorities have warned that shadow banks such as structured investment vehicles, hedge funds and money-market mutual funds could be used to evade regulators’ attempts to clamp down on excessive risk taking in the wake of the global credit crunch and subsequent lender bailouts. The shadow-banking system had liabilities of about $16 trillion in the first quarter of 2010, the Federal Reserve Bank of New York said in a report last year.

Carney will continue to run monetary policy in Canada, the world’s 10th largest economy. Like other central bankers, he has spent the last three years seeking to bolster growth by keeping interest rates at historically low levels.

The Canadian financial system that Carney helps oversee largely escaped the last financial crisis and has been ranked the world’s soundest by the Geneva-based World Economic Forum. The country’s three largest banks -- Royal Bank of Canada, Toronto-Dominion Bank and Bank of Nova Scotia -- are among the world’s 20 largest by market capitalization.

--With assistance from Sean B. Pasternak in Toronto and Rebecca Christie in Cannes, France. Editors: Andrew Atkinson, Paul Badertscher

To contact the reporters on this story: Theophilos Argitis in Cannes, France at targitis@bloomberg.net; Jim Brunsden in Brussels at jbrunsden@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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