thedailybell.com / By Staff Report / March 6, 2013
Mark Carney to the bankers: the joke is on you now … In the long run, “heads-I-win-tails-you-lose finance” catches up to you. That was the message Bank of Canada Governor Mark Carney delivered to an audience of finance majors at Western University’s Richard Ivey School of Business today. In other words: “don’t you kids try to play that game.” It’s in the banks’ own interest to embrace stricter regulation aimed at restoring the public’s confidence in the financial system, Carney said in prepared remarks. Lower levels of trust since the financial crisis are harming the economic recovery and the banks’ own business, the governor noted – EconoWatch
Dominant Social Theme: Regulation will ease the problems of public perception when it comes to banking.
Free-Market Analysis: Mark Carney is set to be the next Governor of the Bank of England, so his words are worth listening to. In a message to university students at Western University (see above) Carney revealed the reason for the regulatory push that is going on in the EU and North America … Trust.
Carney sees the issue as one of public trust and notes that major banks outside Canada are now trading well below their book value. This “indicates shareholder concerns about a combination of the quality of bank assets and the value of their franchises,” he is quoted as saying.
Such sentiments are indications of a larger campaign by top central bankers to bolster the public profile of large banks, and this has led in the European Union, for instance, to a regulatory push to control bank bonuses. An article of ours on this issue just yesterday pointed out what observers are warning, that reducing bank bonuses will likely result in larger base salaries for bankers. The money will be had, one way or another. Here’s more from the article excerpted above:
Credit rating downgrades of many big banks are another sign of that lack of trust, not just between financial institutions and the general public but among financial players as well. Even recent credit upgrades are due more to governments guarantees than debt-holders’ confidence in the banks themselves, Carney said. (The governor didn’t mention this, but Canada’s big banks have seen ratings cuts too recently, albeit not as a consequence of the 2008 meltdown.)
The governor also noted that creeping distrust among national bank regulators might lead to a “balkanized” financial system, with governments trying to insulate their country’s banks from the fallout of foreign crisis by restraining cross-border financial flows. Some euro zone countries, in particular, are known to be flirting with such options. These measures, though, tend to exacerbate rather than reduce risk, Carney noted.