WASHINGTON (Reuters) - The current global economic uncertainty is no reason to delay financial regulatory reform, Bank of Canada Governor Mark Carney said on Sunday, rejecting what he called the “fatalism” of critics in the banking industry.
In a speech to the Institute of International Finance in Washington, Carney said the benefits of a stronger financial system in the future far outweigh the cost of slightly slower growth that might result from tougher new rules.
Speaking after Group of 20 finance officials urged Europe to take urgent action to prevent the euro zone debt crisis from spreading into a banking crisis, Carney sought to shoot down one by one the arguments made by some lenders calling for a slower pace of implementation and a softening of capital and liquidity requirements.
“It is hard to see how backsliding would help,” he said.
“Indeed, at a time when the conviction of policymakers across a range of issues is being called into question, there appears to be little value in feeding this concern.”
Global banking regulators have agreed on new capital and liquidity rules for banks, and plan to begin phasing them in as of 2013. They are working on other measures specifically for the world’s largest banks, as well as for other segments of the financial system.
Carney acknowledged that bankers had “valid concerns” that the more stringent rules on traditional banks would encourage them to transfer more risky activities into the so-called shadow banking sector, which played a big role in the run up to the most recent financial crisis.
He assured them that policymakers and regulators were studying several ways of preventing regulatory gaps in shadow banking, including limits on banks’ exposure to shadow banking entities.
Banks have also complained that countries may adopt the new rules at different times over the 2013-2019 implementation phase, giving some an unfair advantage.
“Everyone is claiming to be a boy scout while accusing others of juvenile delinquency,” Carney said. “However, neither merit badges nor detentions will be self-selected but, rather, determined by impartial peer review and mutual oversight.”
Writing by Louise Egan, Editing by Chizu Nomiyama