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 broadcast Thursday morning London time, 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 U.K. 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 wide-ranging interview, which aired on BBC World News' HARDtalk program, touched on a number of topics, including Carney's willingness to accept next year's opening as governor of the Bank of England — a definite no, he said.
"I'm very focused on my post at the Bank of Canada and the Financial Stability Board, and I look forward to working with the new or the next governor of the Bank of England," he told the interviewer.
Asked further if he was discounting ever considering the job, he responded, "yes."
The Canadian central banker was rumoured to have been asked about whether he would be interested, but has in the past said no formal approach had been made.
One reason the suggestion was not considered totally without merit is that Carney has an English wife and once worked in London for Goldman Sachs.
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 per cent 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."
Last month, the Bank of Canada downgraded the prospects for Canadian economic growth to 2.1 per cent this year and 2.3 per cent in 2013, citing escalating global risks. Some private forecasters have gone further, predicting growth will be below two per cent 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 eurozone countries are rich enough to do the job themselves.
"In these circumstances, IMF loans are not an adequate substitute for a serious commitment by eurozone 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.
The UK bank has been at the centre of a very public storm since U.S. and British authorities fined it more than $450 million last month for its part in manipulating Libor. The ensuing backlash cost chief executive Bob Diamond and chairman Marcus Agius their jobs. The pair have appeared before a parliamentary committee to testify about what went on at the bank, in a scandal which has drawn in British central bankers and government ministers.
BANK OF AMERICA
Bank of America is among the banks being investigated, a person familiar with the matter told Reuters last year. The bank did not comment in its 2011 annual report. It is one of 11 banks accused of conspiring to manipulate Libor in two lawsuits filed by discount brokerage and money manager Charles Schwab.
The Swiss Competition Commission said in February that Bank of Tokyo-Mitsubishi UFJ was among those it was investigating on suspicion of conspiring to manipulate rates. The Japanese bank did not comment on any probes in its 2011 annual report. This month, the group suspended two London-based traders as a result of a probe into manipulating interbank lending rates, but the bank said that was not to do with their conduct at BTMU. They had previously worked at Dutch lender Rabobank.
Citigroup said its subsidiaries had received requests for information and documents as part of investigations in various jurisdictions. The U.S. bank said it was cooperating. The bank is also subject to a number of private lawsuits filed in the U.S. against banks that served on the Libor panel. In December, Japan's financial regulator said it would penalise the Japan securities units of Citigroup and UBS after finding that an individual who worked at UBS and then moved to Citi had, along with his boss at Citi, attempted to influence the Tokyo interbank offered rate (Tibor).
Credit Suisse is one of 12 banks being investigated by the Swiss Competition Commission about alleged collusive behaviour among traders to influence the bid ask spread for derivatives tied to Libor and Tibor as well as the rates themselves. Credit Suisse said it was cooperating fully.
The German bank said it was cooperating with investigations in the United States and Europe in connection with setting rates between 2005 and 2011. It has had civil actions filed against it in the United States related to the setting of Libor. Germany's market regulator has launched a probe into the bank over suspected manipulation of interbank lending rates, sources have said. Results are expected in mid-July. German magazine Der Spiegel reported, citing no sources, that two Deutsche Bank employees have been suspended after external auditors examined whether staff were involved in manipulating rates.
Lloyds said it was cooperating with investigations. It has also been named in private lawsuits in the U.S. related to the setting of Libor. It said it 2011 annual report that it could not predict the ultimate outcome of investigations or lawsuits. In May, the bank said two derivatives traders had been suspended following an investigation into possible interest rate manipulation.
HSBC has said it received demands from regulators for information in connection with Libor investigations and it was cooperating. It has also been named in lawsuits related to Libor in the United States. HSBC said in its 2011 annual report that it could not predict the outcome of the investigations and lawsuits.
The bank, now a subsidiary of Lloyds, said it was cooperating with investigations. It has also been named in private U.S. lawsuits related to the setting of Libor. HBOS said it in its 2011 annual report it was not possible to predict the scope, outcome or impact of the investigations and lawsuits.
JPMorgan said it was cooperating with regulators and government bodies investigating the setting of Libor, Euribor and Tibor rates, mainly in 2007 and 2008. It has also been named as a defendant in private U.S. lawsuits over Libor.
Rabobank said it was cooperating with investigations into possible manipulation of Libor rates. It has also been named as a defendant in a number of civil lawsuits in the United States. Rabobank said it was confident the claims would be held unfounded and was conducting its defence as such.
Canada's largest bank did not make any comment in its 2011 annual report on its involvement in regulatory probes into possible manipulation of interbank lending rates.
Royal Bank of Scotland said it was cooperating with investigators, who had requested information. RBS said members of its group had been named as defendants in a number of lawsuits in the United States. The bank said it had substantial defences to these claims. Following a newspaper report last month that it faced a 150 million pound fine, RBS said there could not be any certainty as to the timing or amount of any fine or settlement.
The Swiss bank said it had been granted leniency or immunity from potential violations by some authorities, including the U.S. Justice Department and Swiss Competition Commission, in return for its cooperation in the Libor manipulation probe. It did not specify what information it was providing. In December, Japan's financial regulator said it would penalise the Japan securities units of Citigroup and UBS after finding that an individual who worked at UBS and then moved to Citi had attempted to influence Tibor. It has also been the subject of U.S. lawsuits.
The German bank was among those being investigated, a person familiar with the matter told Reuters in March last year. The bank made no mention of the probes in its 2011 annual report. In July last year it was dropped, at its request, from the panel of banks contributing to daily fixings of Libor for U.S. dollars.
The Japanese bank did not mention the investigations into possible Libor manipulation in its 2011 annual report. In April last year it was one of 12 banks sued by Vienna-based asset manager FTC Capital, accused of conspiring to manipulate Libor.