OTTAWA (Reuters) - Canadian central bank chief Mark Carney has hired a high-level executive at investment bank Goldman Sachs Group Inc, his former employer, to advise him on financial market reforms.
Bank of Canada said on Tuesday that Timothy Hodgson, chief executive of Goldman Sachs Canada, will serve as special adviser to Carney for an 18-month term beginning September 1.
Carney and Hodgson are of the same generation and worked together at Goldman Sachs in New York from 1998 to 2000. On Tuesday Carney called his former colleague “one of Canada’s top investment bankers.”
“He is widely recognized for his exceptional transaction skills and understanding of how markets work,” Carney said. “The bank is privileged that someone of his experience has chosen public service at this critical time.”
Carney himself had a 13-year career with Goldman in its London, Tokyo, New York and Toronto offices before going to work for the Canadian government and later the Bank of Canada.
Goldman Sachs alumni have for decades gone on to top leadership positions throughout the business world, including former U.S. Treasury secretaries Henry Paulson and Robert Rubin.
Hodgson is leaving Wall Street’s most powerful investment bank after it suffered a major legal and public relations crisis this year when U.S. Securities and Exchange Commission charged it with fraud in a civil lawsuit over its marketing of a subprime mortgage product. Goldman has called the lawsuit “completely unfounded”.
Hodgson joined Goldman Sachs in 1990 and before his appointment as CEO of the Canadian operations in 2005, he held senior positions in New York, California and London, the Bank of Canada said.
In his new role, Winnipeg-born Hodgson will work on developing and implementing reforms to the repo and over-the-counter derivatives markets and on increasing capital levels at banks.
Based in Toronto, he will head a team that liaises with the country’s major commercial banks, which are mostly based there, to advance planned reforms.
Tougher bank capital standards and other financial market reforms were high on the agenda of Group of 20 leaders who met on the weekend in Toronto.
They renewed a promise to overhaul financial regulations to prevent future financial crises of the magnitude of the one just experienced.
Canada’s banks emerged largely unscathed from the crisis due to conservative rules, but will still need to implement new standards once the G20 signs off on them later this year.
Many countries are also taking a tougher look at over-the-counter derivatives trading, which is being targeted in the landmark U.S. financial-reform bill.
Mark Chandler, head of Canadian fixed income and currency strategy at RBC Capital Markets, said Hodgson’s expertise will be useful as the central bank deals with financial reform issues.
“There’s a fair amount of discretion on how it’s applied country by country. So there’s not going to be a boilerplate solution,” Chandler said.
“You need people in place that know the particulars of each country’s financial system and what will and what won’t work. With that in mind, obviously it seems Mr. Hodgson has a good view of that,” he added.
But the decision drew fire from a one opposition lawmaker. Thomas Mulcair, responsible for financial policy for the left-leaning New Democratic Party, said Carney should reverse the move and that 18-month contract left open the possibility Hodgson could return to the financial sector after helping shape the new rules.
“If he wanted to come into the public service and be a public servant with all of its attendant rules, which are quite strong with regard to what you can do and not do after, that would be fine,” he told Reuters.
“It’s an 18-month contract, the guy is going to have privileged access to all of the government’s thinking on these key issues.”
An email to a Goldman Sachs spokesperson about Hodgson’s long-term plans was not immediately returned.
A Bank of Canada spokesman said he could not immediately provide comment in response to Mulcair’s remarks.
Additional reporting by Jennifer Kwan; Editing by Jeffrey Hodgson