Business World

Friday 15 December 2017

Mark Carney warns regulatory fatigue could pose major threat to G20 economies

Bank of England Governor Mark Carney Photo: Reuters
Bank of England Governor Mark Carney Photo: Reuters

Ben Woods

Mark Carney has warned leaders of the world's fastest growing economies that giving into "reform fatigue" could put global financial stability at risk.

While "immense progress" has been made shoring up the financial system since the banking crisis of 2008, the Bank of England Governor said a failure to put more regulation in place could lead to slower economic growth and heighten risks to the G20 group of nations.

Speaking as chairman of the Financial Stability Board (FSB), he said leaders must not try to avoid repeating the failures of the past, but should evolve their regulatory frameworks to meet challenges of the future, such as those posed by fintech and cyber crime.

He said: "Despite this immense progress, there are nascent risks that, if left unchecked, could undermine the G20's objective for strong, sustainable and balanced growth.

"In particular, giving into reform fatigue could erode the willingness of G20 members to rely on each other's systems and institutions and, in the process, fragment pools of funding and liquidity, create inefficiencies and frictions, reduce competition, and diminish cross-border capital and investment flows.

"The net result would be less and more expensive financing for households and businesses, and very likely lower growth and higher risks across the G20."

The watchdog also urged leaders to support its efforts to tackle financial misconduct by making senior managers more accountable and preventing repeat offenders from switching companies.

Mr Carney said there had been an over-reliance on fines to stamp out wrongdoing, with 320 billion US dollars (£247 billion) in penalties and ligation costs being paid out by global banks since the financial crisis.

Demonstrators against the G20 Summit stand on stage wearing masks depicting German Chancellor Angela Merkel, center, French President Emmanuel Macron, right, and Canadian Prime Minister Justin Trudeau (Axel Heimken/dpa via AP)
Demonstrators against the G20 Summit stand on stage wearing masks depicting German Chancellor Angela Merkel, center, French President Emmanuel Macron, right, and Canadian Prime Minister Justin Trudeau (Axel Heimken/dpa via AP)

Businesses and households could have benefited from five trillion US dollars worth of lending if the money had been retained as capital, he added.

In a letter to the G20 leaders, Mr Carney called for a quick roll-out of the final parts of Basel III - a stringent set of capital rules for lenders - to help deliver a "resilient international banking system".

He also underscored the progress made in tackling so-called "shadow banking", where lending and market activity is carried out by unregulated institutions.

He said the regulation had been such a success the "enormous risks" posed by the practice no longer presented a threat to global financial stability.

He said: "In 2013, the G20 agreed the shadow banking roadmap to implement its comprehensive framework to strengthen oversight and regulation of shadow banking.

"A decade on, as a result of these measures, the financial stability risks from the toxic forms of shadow banking at the heart of the crisis no longer represent a global stability risk.

"The remaining activities are now subject to policy measures which reduce their risks and reinforce their benefits, allowing for more diverse and resilient forms of market-based finance."

Press Association

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