Bank of England governor calls for more reform

David Harvey our consultant managing the role

The process of reforming Britain's banks is nowhere near complete, the governor of the Bank of England has argued.

The way banks are run in the UK and around the world has been radically changed through new regulations adopted by individual governments and via global agreements, but more can be done to improve it, the governor of the Bank of England believes.

Delivering the 2014 Monetary Authority of Singapore Lecture, Mark Carney said there was no doubt a lot of progress has been made to ensure that "a system that was built precariously on sand will stand more firmly on rock".

He pointed to higher capital holding requirements, simplification of the system, increased transparency and regulations that mean failing banks will never again be bailed out by taxpayers as signs of major progress, emphasising that the one part of this stage that remains is full and effective implementation of the agreed standards.

Even so, Mr Carney added, there is more that can be achieved. He remarked: "We must now consolidate our progress to build a financial system that can deliver strong, sustainable and balanced growth for all economies: large or small; advanced or emerging; home to large financial institutions or host to them. "

He listed five aims that further reforms should seek to achieve. These would be to have an "efficient and reliable" payments infrastructure, companies being able to get the working capital they need for investment, the transformation of liquid savings into long-term lending, core markets whose function encourages the diversification and better management of risks, plus ensuring that capital is "allocated efficiently across the globe".

Mr Carney went on to explain that this can best be achieved by a more diverse system, which he described as including "market-based as well as bank-based finance" to help SMEs thrive; a more open system that can match savings and capital better, reducing the chances of "Balkanised finance" occurring, and a system people trust to support the economy through "innovative and efficient" measures.

Of course, such change will not come about overnight, as some governments may feel they have done enough, vested interests may put on pressure not to carry out more reforms and the direction of policy one government might take could shift if it loses power when it next faces an election. In the latter case, this may be an issue in Britain next year; will there be a consensus on the next steps to take that guides reform down the path Mr Carney has recommended, irrespective of who is in office?

For banks, it may mean more change - but that is something they should be happy to embrace, as it will produce greater trust and more effective operations. Skilled staff who can help implement changes will be in high demand, but by working with financial sector specialist recruitment agencies, it will be possible to find the sort of people needed to help bring that about.

Commenting on the speech by Mr Carney, chairman of the Treasury Committee and former chairman of the Parliamentary Commission on Banking Standards Andrew Tyrie MP agreed with the words of the governor, acknowledging that the various authorities have "much work to do" in implementing the new regulations.

He also agreed with a comment by Mr Carney that setting bonus caps for bank staff was a flawed idea, arguing this would only push up fixed pay.

11/04/16
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