Mike Carney Calls for ‘Big Push’ from Global Banking Industry
The global banking industry and financial markets have recently shown an impressive degree of resilience as the world recovers from the economic slow-down. One of the quickest currencies to recover was the pound sterling, which was demonstrated by the strength of the currency in comparison to other global currencies as the crisis started to come to an end.
Carney Issues a Warning
Despite this, Mike Carney, governor of the Bank of England, has called for affirmative action from the industry as a whole. His remarks are aimed not just at British banks but at financial institutions worldwide. This is in a push to prevent the financial sector from slipping back into a state where the banks were considered ‘too big to fail’.
Don’t Let Safeguards Slip
Carney has warned his counterparts not to become over-confident about the rallying cries of the industry. This comes in direct contrast to indications that governments are wary of the stringent rule-making of financial regulators. They are concerned that over-regulation could see global economies slip back into crisis.
Mr Carney seems to hold the opposite view, as he has already announced that new regulations were planned that would see a bank’s creditors taking the brunt of a bank’s collapse rather than the taxpayer.
A Direct Message
Mr Carney’s messages were aimed at members of the G20, who are going to be meeting soon at the G20 summit. Such comments stress the importance that those within the industry remain robust and operate in a more sustainable fashion moving forward. Controls such as increasing the amount of capital a bank must maintain should help to safeguard the industry from future crises if they occur.
The Financial Stability Board (FSB) recently made moves to ensure better regulation of shadow-banking institutions – that is to say, any financial institutions that would not be classed as banks in the traditional sense. Examples would be car finance companies, wholesale lenders, crowd-funders and, perhaps most pertinently, payday lenders.
The regulations not only impose more stringent rules on shadow banks themselves, but also on financial institutions in the global market that interact with them. A minimum of six per cent of the collateral discount or “haircut” must be imposed on collateral received by banks from shadow banks. The idea is that this acts as an insurance policy to guard against risk in this relatively new, yet rapidly growing, area of the industry.
The strengthening of the dollar along with diminishing oil prices will present challenges to the industry, but it appears that reforms that have already been introduced are working as they were intended to. These positive responses are very encouraging for the banking and finance industry as we move forward, but Carney warns that complacency must be avoided.