Please find below a speech by Mark Carney, Governor of the Bank of Canada and Chairman of the G20′s Financial Stability Board (FSB), on restoring trust in the global banking system.
In the speech, Carney notes that there has been a “significant” loss of public trust in the financial system, based on a growing skepticism about the benefits of looser government regulation and easier flows of capital across global borders, “a suspicion that could ultimately undermine support for free trade and open markets more generally”.
Carney also notes how the G20 has implemented a range of reforms to shore-up the banking system, including reserving at least seven times as much capital on their balance sheets as before the crisis, and accounting rules that make clearer what the risks are that assets could fall in value.
However, while these reforms will go “a long way” toward restoring public confidence in banks since the 2008 financial crisis, they won’t be sufficient. Accordingly, Carney argues that a combination of institutional and individual initiatives—the “Five Cs”—is required to rebuild trust, namely:
- Capital – increasing bank capital, including through higher minimums, surcharges for systemically important banks, countercyclical buffers and tougher definitions of capital;
- Clarity – developing a single set of high-quality reporting standards, particularly in the areas of revenue recognition and asset valuation, as well as improving accounting for off-balance-sheet securitisations, and enhanced disclosures of credit risk and the transfers of financial assets.
- Capitalism – removing the “heads-I-win-tails-you-lose” nature of banking whereby bankers made enormous sums in the run-up to the crisis and were often well compensated after it hit, whereas taxpayers were left picking-up the tab for their failures. In this regard, the FSB is developing effective resolution tools aimed at reducing the moral hazard associated with “too big to fail”.
- Connecting with clients – returning to “old fashioned banking” — activities that help grow their country and communities, rather than the complex securitisation chains that developed prior to the financial crisis.
- Core values – better aligning bank values with shareholders and the broader community. The FSB has developed Principles and Standards for Sound Compensation Practices. Core elements include deferred variable performance payments, paying bonuses in stock rather than cash, and introducing bonus clawbacks.
Carney concludes his speech with the following remarks:
It has been said that, “trust arrives on foot, but leaves in a Ferrari.” After the Ferrari screeched out of the parking lot in 2008, what steps have been taken to rebuild trust?
There has been progress. As the new Basel capital rules are implemented, and the reliance on ratings agencies diminishes, market infrastructure improves; and as banks—and, crucially, their investors—develop a better appreciation of their prospects for risk and return, business models are beginning to change.
Already, a couple of banks have fallen off the list of globally systemic banks because they have simplified, downsized and de-risked their business models. Other institutions are de-emphasizing high-profile but risky capital markets businesses that benefited employees more than shareholders and society.
Global banks have made significant progress in reforming their compensation practices so that rewards more closely match risk profiles. In addition, boards of directors and risk committees are taking more responsibility to ensure that remuneration packages and employee behaviour are aligned with updated institutional cultures.
Unfortunately, a spate of conduct scandals ranging from rigging LIBOR to money laundering has overshadowed these steady and material improvements.
This underscores that it remains the collective responsibility of banks, regulators and other stakeholders to rebuild trust in banking. Banks need to participate actively in reform, not fight it. Until recently, too few bankers acknowledged their industry’s role in the fiasco. The time for remorse is far from over.
At the same time, the public sector needs to be more vocal and appreciative when the industry makes major contributions. This has been the case with the EDTF and in work on bail-in debt, a key element of ending “too big to fail.” In addition, the best global organisations are now recognising the need to address their corporate ethics. All of these efforts should be publicly encouraged and reinforced.
Ultimately, it will be down to individual bankers, including the Ivey grads who will go into finance. Which tradition will you uphold? Will your professional values be distinct from your personal ones? What will you leave those who come after you?
Click here to read the full transcript.
unconventionaleconomist@hotmail.com
I would never trust them for the rest of my living days. Why would anyone, the cycle repeats, deregulation to make more profit for a few at the top with a number of vested interests. It’s better to just not trust. This word trust should not even be in the English dictionary in modern life. If you go forward into some agreement or business deal based on trust you are really a fool.
Mark Carney ?
This guys is as bad as any central banker out there, and thats really saying something.
What does Gideon Gono have to say about this ?
Indeed. Isn’t he running away from Canada before the crowds come after him with their flaming torches and pitchforks?
Is it trust they have to gain or the lack of transparency?
Their real workings have been exposed and it will take a generation or two for their opacity to recover.
And what if we don’t trust them? Did anything change? Did they become more socially responsible or less greedy? Did someone go to jail or have remorse for the hundreds of millions they personally had stolen from hard working savers? They were, they are and they will always be the worst sociopath, because they take pleasure of making the whole global working society miserable by stilling its savings.
Do as I say, not as I do (did)?
https://en.wikipedia.org/wiki/Mark_Carney
“Carney spent thirteen years with Goldman Sachs in its London, Tokyo, New York and Toronto offices. His progressively more senior positions included co-head of sovereign risk; executive director, emerging debt capital markets; and managing director, investment banking. He worked on South Africa’s post-apartheid venture into international bond markets, and was involved in Goldman’s work with the 1998 Russian financial crisis.
Goldman’s role in the Russian crisis was criticized at the time because while the company was advising Russia it was simultaneously betting against the country’s ability to repay its debt.”
Har har har har …toooooo….funnnny !
They have had their chances but in the end all they get from me is a big fat FAIL !
Until the criminal prosecutions start in earnest (HSBC being just one bloody example) then they can all take a red hot poker up the jacksy….
Nothing has been learnt, no hard lessons doled out, all they get is preferential treatment to the detriment of everybody else.
Calling them a bunch of w@nkers is one huge understatement.
Let them eat humble pie in a dose big enough to make them choke (and half of them die), until then nothing will be learnt.
The problem is, that those that trusted them the most – the prudent – have suffered the most under ‘the solution’. Who’d be nuts enough to be a saver again, after this lot is finished? I’ve saved all my life, and now, at nearly 60, I’m racking up as much debt as I can get my hands on. Sure, I’ve still got ( what’s left in value of) my money, but now I’ve got heaps of ‘theirs’, and my estate can sort out who, or if, it goes back to the lenders.
This is certainly the mood J. The tail end risk for holding currency has just gone KABOOM.
The central banks have taught people that only use of the fiat crap is for short-term transactional use (and by short we are talking months – if not weeks). Using this stuff as a store of wealth is pointless, stupid and dangerous.
And yes – prudent savers that believed the central banks and the politicians have been f..d over on a scale they could not have imagined.
No-one will be trusting a banker for a long long time – if ever again.