Bank of Canada chief raps banks over bonuses
By Jennifer Kwan
MONTREAL (Reuters) - Bank of Canada Governor Mark Carney delivered a blunt rebuke to the global financial industry on Monday, saying it had shown insensitivity over high compensation and calling on it to get on board with reforms.
Canada's top central banker, himself a former Goldman Sachs executive, said the financial industry had returned to profit largely as a result of public support and urged bankers use the cash to shore up balance sheets.
"Current bumper profits can compensate employees, be returned to shareholders, or increase capital. The clear priority of the public sector is the recapitalization of the financial system," Carney told an industry conference in Montreal hosted by Quebec's securities regulator.
"The industry should be in no doubt that capital requirements are going up. Those who prefund will be in the best possible position over the medium term."
Recent news that Goldman Sachs Group Inc had set aside $16.8 billion for compensation after repaying $10 billion in U.S. taxpayer money fueled concerns that global banks were returning to the lavish pay practices commonplace before the financial crisis struck.
Recalling the G20 appeal for sound compensation practices, Carney said the industry's current windfall, dependent "on the strongest of safety nets and the policy-driven snap back from the brink, sits uneasily with that principle."
"It would be a mistake to underestimate the determination of G20 leaders to reshape the financial services industry," he said.
He said that risks must be returned to, and borne by, the private sector and warned the current system was awash in "moral hazard", meaning players may still be taking risks on the assumption authorities can always bail them out. Continued...