Mark Carney is going to find his new role as governor of the Bank of England a very different challenge from running Canada’s central bank. This was the conclusion of panellists who spoke at a lively ACT Question Time event that was chaired by ACT engagement director Peter Matza and hosted by Lloyds Bank in London in early July.
Andrew Hilton, director for the Centre for the Study of Financial Innovation, described Carney as “articulate and intelligent” but observed that he “rode the relative success of the Canadian financial system” to land the Bank of England job. He added: “The situation in the UK is very different from Canada. It’s more complicated than any situation he’s ever faced before and in the end it may prove bigger than him.”
“Mervyn King has done a good job during a difficult time for the UK economy,” said Trevor Williams, chief economist, Lloyds Bank Commercial Banking. “I think it will be tough for Mark Carney, as so much has been done already using monetary policy levers.” He also pointed out that the Bank of England’s monetary policy committee is independent and cannot be controlled by one person in the same way as the Bank of Canada’s monetary policy review committee, making the task ahead of him even harder – though not impossible.
Simon Hills, executive director, prudential capital, risk and regulatory relationships at the British Bankers’ Association, noted that Carney’s new role brings with it significant supervisory powers over the UK banking sector. As a result, he called for Carney to signal his confidence in the sector. “When the governor is content that the banks are well capitalised and hold enough liquidity, I hope he says so.”
On the subject of funding, Simon Kilonback, group treasurer at Transport for London, observed that there had been a shift in the way corporates were funding themselves. “We became too dependent on bank lending,” he said, pointing out that private placements and supply chain finance, for example, have been less prevalent in the UK than in other parts of the world, although they have come into wider use more recently.
Hilton questioned whether banks were still a necessary intermediary between savers and borrowers, particularly in light of the increased costs of regulation. He emphasised the importance of using alternative methods of finance.
Regulation continues to be a pressing concern for the real economy, panellists agreed, and corporate customers would end up paying the price for more stringent capital and liquidity controls on banks, as well as ultimately footing the bill for the financial transaction tax in Europe. “When regulation is introduced in response to a crisis, one risk is that it is about the last crisis, not the new environment that businesses are working in,” observed Williams.
Hilton pointed out that regulation favoured larger organisations over smaller ones, since big institutions could amortise the cost over a more substantial client base. He also noted that it acts as a barrier to new entrants to the banking industry. “Over-regulation is the biggest problem facing the banking and insurance industries,” he said. “We need to change the structure of the banking industry so that we don’t have to over-regulate it.”
Panellists also shared their concerns over the supply of cheap money that is being pumped into the global economy by central banks through quantitative easing programmes. “At some point in the future they will have to end – you can only kick the can so far down the road – hopefully when recovery is well entrenched,” said Williams. Kilonback emphasised that it was important not to be lulled into a false sense of security by low interest rates. “You need to look back at interest rates beyond the past 10 years,” he said.
The event was followed by networking drinks on the top floor of Lloyds’ London headquarters.
Sally Percy is editor of The Treasurer