08/08/2012 11:33 EDT | Updated 10/08/2012 05:12 EDT

Mark Carney Rules Out Bank Of England Post, Warns He'll Blow Whistle On Bad Banks


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.

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