KEVIN CARMICHAEL
Mark Carney and Rick Waugh are two of Canada’s most recognizable figures in the world of finance: Mr. Carney as the leader of a Group of Seven central bank, Mr. Waugh as the chief executive officer of Bank of Nova Scotia, which has the biggest international footprint of all the country’s lenders.
This can make them allies. But on Sunday in Washington, Mr. Carney and Mr. Waugh were opponents, squaring off over the overhaul of international financial regulation.
The venue was the annual meeting of the Institute of International Finance, the banking lobby of which Mr. Waugh is the vice-chairman. Mr. Carney, who was in the U.S. capital for weekend meetings of the International Monetary Fund and World Bank, was the day’s first speaker – and he felt no need to curry favour with his hosts.
Mr. Carney, an influential figure in the crafting of the revised financial guidelines because of his experience as an investment banker, attacked the IIF’s contention that stricter rules are hurting the economic recovery, calling the group’s arguments “questionable.” Mr. Carney also dismissed as fatalistic the notion that new rule-writing is a waste of time because creative bankers will only find ways around the obstructions.
“In no other aspect of human endeavour do men and women not strive to learn and improve,” Mr. Carney said. “The sad experience of the past few years shows that there is ample scope to improve the efficiency and resilience of the global financial system.”
Bankers are under pressure; big financial firms have fired tens of thousands of people in recent weeks.
The economies of the United States, Europe and Japan are barely growing and financial markets are volatile because of worries over the solvency of countries such as Greece and the banks that hold the debt of those nations.
On top of all that, they are facing a future of much tougher regulatory requirements, including demands that they keep much more capital in reserve and a tighter limit on the amount of lending they can do in excess of that capital base.
The Washington-based IIF, which represents 450 firms from 70 countries, is pushing back. While the group supports the broad efforts of the Group of 20 nations, its leaders say the authorities are pressing ahead too quickly.
In June, JPMorgan Chase chief executive officer Jamie Dimon confronted U.S. Federal Reserve chairman Ben Bernanke, using the question-and-answer session after a speech by Mr. Bernanke to complain about the new regulatory regime. Mr. Dimon demanded to know whether the Fed had studied how the rules were affecting economic growth. Mr. Bernanke conceded the Fed had not.
On Sunday, Mr. Waugh was more polite to the leader of his central bank. “He’s my governor and I’m very proud of that fact,” Mr. Waugh said in introductory remarks.
But the IIF’s position on regulation put Mr. Waugh and Mr. Carney on opposite sides on this day.
The IIF this month released a study that said, once implemented, the G20’s regulation plans will cut economic output by 3.2 per cent by 2015, costing 7.5 million jobs.
“There is no doubt in our minds that banks have to lend to contribute to the economic recovery,” Mr. Waugh told a small group of reporters later. Calling the level of new regulations that banks face “huge,” Mr. Waugh said it “doesn’t make much common sense” to advance with such a strict regulatory regime at the same time governments are fighting to reduce unemployment.
Mr. Carney told the IIF that its study was seriously flawed, in part because it fails to assume any economic benefit from reducing the risk for future financial crises.
Several assessments, including one by the Bank of Canada, suggest tighter regulations will have a positive impact on economic growth over the longer term. Mr. Carney emphasized that banks have until 2019 to adapt to the changes – a window that many critics say is too generous.
“It is difficult to believe that prolonging this implementation phase even further would have material impact on real economic outcomes,” Mr. Carney said. “If some institutions feel pressure today, it is because they have done too little for too long, rather than because they are being asked to do too much, too soon.”