In a recent speech delivered in Singapore, Bank of England Governor Mark Carney in his capacity as Chair of the Financial Stability Board (FSB) outlined his vision of the future of financial reform.
For those who may not have been in Singapore to listen or had the chance to thumb through the entire twenty-eight pages of this interesting and wide-ranging speech (complete with five pages of charts & stats), some of the key points are summarised below.
- the G20 / FSB reform agenda post-2008 resulted in a global financial system that is safer with more capital and liquidity, simpler having removed many complexities and fairer by ending “too big to fail” and the absence of moral hazard;
- to maximise its potential the global financial system needs to be diverse (market and bank finance), trusted by society and remain a system open to all nations with trust between countries;
- Carney highlights that capital requirements for banks are much higher (at least 7 times pre-crisis standards);
- there are agreements to take forward proposals on total loss absorbing capacity (TLAC) for globally systemic banks, which if they fail, will also be resolved without recourse to the taxpayer;
- highlights the passage by Parliament of the UK’s stronger regulatory framework to give regulators more tools to hold senior managers to account and the remuneration code on payment of bank bonuses – deferral for a minimum of 3 years and exposed to clawback for up to 7;
- interconnections created by derivatives are being reduced and made more transparent, there are requirements to centrally clear derivative trades rather than the complex web of bilateral deals and trade reporting and margining requirements are being strengthened;
- as memory of the crisis of 2008 fades, it will be even more important to maintain the reform agenda and explain its benefits;
- financial reform alone could raise G20 GDP by more than 2% by reducing the economic costs of the financial crisis.
Memorable Quote: “Reform should stop only when industry and society are content and finance justifiably proud.”