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LONDON, Ontario (Reuters) - Banks and regulators need to do a lot more to rebuild the trust in the financial system that was shattered in the recent crisis, Bank of Canada Governor Mark Carney, head of the G20's Financial Stability Board, said on Monday.
The Group of 20 leading economies has made progress in financial reforms which will go a long way, but these alone will not be sufficient, he said in a speech to business students at Western University in London, Ontario.
"Virtue cannot be regulated. Even the strongest supervision cannot guarantee good conduct. Essential will be the rediscovery of core values, and ultimately this is a question of individual responsibility," Carney said.
The lack of trust in major banking systems "deepened the cost of the crisis and is restraining the pace of recovery," he said in the prepared text of his speech, which made no mention of Canada's economic or interest rate outlook.
"There is a growing suspicion of the benefits of financial deregulation and cross-border financial liberalization, a suspicion that could ultimately undermine support for free trade and open markets more generally," he said.
Carney said progress in the G20's financial reforms was "not yet fully reflected in market valuations or public attitudes," lamenting that the good work done so far had been overshadowed by a spate of scandals including rigging Libor interest rates.
Reduced trust in the financial system has increased the cost and lowered the availability of capital for non-financial firms, with access to credit remaining strained despite the massive response of central banks, he said.
Carney, who will leave Ottawa to become governor of the Bank of England in July, spoke of the risk of the balkanization of the banking system as some supervisors try to ring-fence bank subsidiaries in their own jurisdictions to make sure they are resilient on a stand-alone basis.
Ironically these efforts would reduce systemic resilience globally, and if left unchecked could substantially decrease the efficiency of the global financial system, he said.
Writing by Randall Palmer; Editing by David Ljunggren and James Dalgleish