Britain’s regulatory mandarins rejoiced last fall when Bank of Canada governor Mark Carney, the “rock star” of central banking — could there really be such a thing? — accepted the job of head of the Bank of England.
Now, the U.K. government is preparing to give Carney a seemingly unprecedented amount of power for a British central banker.
Under bank reforms revealed by British Chancellor George Osborne on Monday, Carney’s Bank of England will be placed in charge of regulating the banks, and given the power to break up those banks that fail to live up to rules designed to ensure they don’t become “too big to fail.”
Britain had earlier resolved to create a “ring fence” around banks’ investment branches, so that if the investment side ends up facing financial collapse (as happened with many banks operating in Britain during the financial crisis of 2008), it won’t affect the banks’ retail customers (as also happened in Britain during the crisis.)
Now, the country’s Conservative government appears to be climbing down from its earlier resistance to tougher regulations, and has agreed to a plan to “electrify” the “ring fence” — in other words, if the Bank of England feels a financial institution is putting consumers at risk, it can order the bank to be broken up entirely.
“My message to the banks is clear: If a bank flouts the rules, the regulator and the Treasury will have the power to break it up altogether — full separation, not just a ring- fence,” Cameron told an audience at JPMorgan’s UK headquarters, as quoted at MyFinances UK.
"The Bank of England will be the super cop of our financial system."
For Carney, who remains the governor of the Bank of Canada until he takes up his new job in London in July, the new rules set up a potential conflict with the country’s banks.
The British Bankers’ Association has come out against the new banking rules, saying they will prove to be bad for business.
"This will create uncertainty for investors, making it more difficult for banks to raise capital, which will ultimately mean that banks will have less money to lend to businesses," said Anthony Browne, chief executive of the bankers’ association.
Carney is already facing a grilling in front of the British Parliament this week, as he answers questions in front of the finance committee about his plans to quit five years into his eight-year term, and about comments he made recently suggesting he is receptive to fundamental change in the way central banks work, from tackling inflation levels to targeting nominal GDP growth.
This technical debate, on which Carney has sided with the “radicals” proposing reform, has many of Britain’s more fiscally conservative elements worried about Carney’s appointment.
Under Britain’s new banking regulations, Carney, as head of the BoE, will run the Prudential Regulation Authority, a new body responsible for regulating the country’s financial institutions.
This is significantly different from the U.S. and Canada, where the central banks are not the primary overseers of bank regulation. In Canada, the Office of the Superintendent of Financial Institutions (OSFI), an independent arm of the Department of Finance, is responsible for enforcing bank regulation.
The U.S.’s ad hoc banking regulation system sees a number of different agencies overseeing banks, including the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Federal Reserve board. Banks are also subject to state regulation as well as oversight by the newly created Consumer Financial Protection Bureau.
Mark Carney may have been born in a tiny Canadian town but the man, who bears a distinct likeness to movie star George Clooney, is unlikely to fail the Britishness test when he makes his application for UK citizenship. Read more...
When you look in the round at what Mr Carney has taken on, it is easy to see why he fled when originally wooed by Mr Osborne - because it is reasonable to ask whether any mortal can do this job. Read more...
Today the chancellor confirmed that there will be no real change at theBank of England. There will be no change to the Treasury and Bank of England's obsession with inflation targeting and "price stability". Above all, he confirmed that there will be no reining-in of the banks; that banks will not be re-structured - to separate the retail and investment arms, and ensure that banks are no longer too big to fail. He confirmed this by appointing an ex-Goldman Sachs banker, Mark Carney, as governor of the Bank of England. Read more...
The scale of the job facing Mr Carney is enormous. The independent Bank of England as established by Gordon Brown in 1997, was to be a narrow, monetary and interest-rate-setting body. The financial crisis of 2007-08 and recession that followed changed all of that.... The borrowings on the balance sheets of London-based banks are four times the size of the country's total output - giving an indication of the size of the task that lies ahead. Indeed, it was the sheer scale of the challenge that finally persuaded Mr Carney that it was worth doing. Read more...
Is there any stopping Carney-mania? Those of us who 24 hours ago couldn't have identified Mark Carney, even if he was wearing a T-shirt emblazoned with "I'm the Governor of the Canadian Central Bank" in 110pt type, now stroke our chins and swap our best Carney insights. He was voted the most trustworthy Canadian in a poll conducted by Readers Digest (Canada). He has four children. He paid $800,000 for his house in Ottawa, apparently, although he undertook $95,000 of improvements. Did they extend out the back or convert the attic? I don't know, yet. And Canada didn't have a banking crisis, you know. Only it did, in the 1990s, and the recovery and reorganisation put it in place afterwards left it in good shape ahead of the much bigger financial crisis which hit the US and the UK particularly hard. And Canada knows how to regulate its banks, only that wasn't actually Carney's job. This is most of what we know so far. Read more...
The new governor's problem now is that he is bound to disappoint. Unless by some miracle the British economy soon heads towards the sunlit uplands, those now so keen to lavish praise on Mr Carney will start asking whether Britain has got what it paid for. The media will ask awkward questions about his pay and perks; MPs will criticise him at once for not being tough enough on the banks and for choking off credit to small businesses. Read more...
So who are the City getting in Mr Carney? On paper he's an outsider, although he will seek British citizenship, but a look on his CV shows that the Square Mile is getting one of their own. A 47-year-old former Goldman Sachs veteran of 13 years, doing stints in New York, London, Tokyo and Toronto, he will have no trouble speaking to the bankers in a language they understand. After 10 years of Sir Mervyn and "the MA way", in reference to the monetary analysis unit which held sway as the central bank took on a decidedly academic bent, Chancellor George Osborne is drawing a stark line in the sand and setting a new course for the Bank of England. Read more...
Mark Carney, the incoming Governor of the Bank of England, has attacked Andy Haldane, one of its most senior regulators and a rising star, for failing to have a "proper understanding of the facts" on bank regulation... Mr Carney, who is chairman of the global regulator the Financial Stability Board (FSB), criticised Mr Haldane, the Bank's executive director for financial stability, for proposals he made to simplify bank regulation and encourage banks to break up. [Haldane's] proposals ran counter to Mr Carney's work at both the Bank of Canada and the FSB. In an interview last month with Euromoney, Mr Carney said: "I thought Andrew Haldane's speech was uneven... Basle I was simple and it drove us off a cliff. Andrew Haldane's conclusion is not supported by the proper understanding of the facts." Read more...
The appointment of Mark Carney is a political coup. The decision is imaginative while also being safe. It is unusual but not unprecedented to appoint a foreign national to be head of a central bank. Stanley Fischer, Governor of the Bank of Israel, took Israeli nationality and renounced his American citizenship on his appointment. Mr Carney will similarly take British citizenship. Read more...
If this appointment is a celebration of Britain's willingness to scour the worldfor people to run our great institutions - from football clubs to car companies - it is also an acknowedgement of our failures. In central banking this is in theory the third most important job in the world, for the US Federal Reserve and the European Central Bank naturally rank higher. But in practice it is arguably more interesting, partly because it is more wide-ranging, combining bank supervision with monetary responsibility, and artly because London's central role in international finance gives it global significance. Read more...