Criminal Banksters Steal Canada At G20

'Radical' banking reform needed: Carney

Last Updated: Thursday, June 10, 2010 | 10:00 AM ET Comments58Recommend32

The Canadian Press

The time for debate is nearing an end and banks should prepare for radical reforms to the world financial system that will aid the economic recovery, Bank of Canada governor Mark Carney says.

Bank of Canada governor Mark Carney says banks should prepare for radical reforms to the world financial system. (Sean Kilpatrick/Canadian Press)

In a key address to international securities regulators in Montreal, the central banker outlines a series of reforms he says G20 leaders are preparing to approve at summits in Toronto later this month and Korea in November.

The Bank of Canada released an advance copy of the speech.

Carney says the changes to the world system are "radical, not incremental" but will end up looking a lot like what is already practised in Canada, with a few add-ons.

"The rigour of Canadian capital regulation was an important — although far from exclusive — reason why the Canadian system fared so well during the crisis," Carney said.

And he stressed that reforms pose no threat to the global recovery, saying the opposite is true — they will help economic growth.

Once implemented, global financial institutions will be required to retain more and better capital, improve liquidity and reduce risk, and introduce a capital buffer that is sufficiently large to absorb losses encountered in the 2008 crisis that led to a global recession, Carney said.

There is little question reform is needed, he said.

The 2008-09 financial crisis in the United States and several major European economies "exposed the fallacy" that strong financial institutions would collectively act to ensure the soundness of the system for their own preservation.

Reform will aid growth

Although the coming changes will be significant, Carney dismissed critics who believe the requirement for more capital reserves will limit banks' ability to lend and slow down economic activity.

In fact, the opposite will happen, he said.

The reforms will cause banks to shift focus away from trading risky financial instruments and more to conventional lending to businesses and individuals that spur growth, he argued.

And he noted that banks will be given plenty of lead time to meet new standards since the implementation date of key reforms won't be until the end of 2012.

Carney's speech was prepared for the International Organization of Securities Commissions meeting in Montreal.

The Canadian central banker said he welcomed that last weekend's meeting of G20 finance ministers in South Korea had refocused discussions on the core reform agenda, and eliminated such distractions as a global bank tax supported by the United States and several European countries.

On Wednesday, Finance Minister Jim Flaherty released a letter that he sent to his G20 colleagues again proposing that instead of a universal levy, key individual banks be forced to create a rainy-day fund to be used during a time of crisis.

Carney said the proposal and others outlined in Flaherty's letter would make those who run and own a stake in the banks responsible for losses, not taxpayers.

"Its presence would also serve as a useful disciplinary device on management since common shareholders would be incented to act prudently and avoid having their stake in the institution diluted away," Carney told the audience.

Read more: http://www.cbc.ca/money/story/2010/06/10/carney-risk-reform.html?ref=rss#ixzz0qSnId6PO