Reform is coming to financial systems around the world, Bank of Canada governor Mark Carney said Monday, despite reluctance among some institutions to amend policies that contributed to the global economic crisis.
Carney told a financial regulators' conference in Montreal that finance ministers, central bankers and other regulators will go ahead with banking reforms, despite signs of resistance from some institutions, including ongoing payments of large executive bonuses.
"(World) leaders have decided about the big initiatives and we will put them in place," Carney said.
Later, when responding to a question, Carney wondered: "Is it a good idea to pay big bonuses when at the same time there is a shortage of capital? Maybe regulators will decide."
Carney's tough talk appeared to be an attempt to warn bankers against using government bailouts and signs of economic recovery as reasons to abandon reforms.
"Relief is in danger of giving way to hubris," Carney said.
"We will not remind market participants of the many oaths they swore a year ago; nor do we expect scores of financiers to join religious orders. However, we do expect those fevered battlefield vows to be respected."
BNN's Pat Bolland said Carney's tough talk wasn't directed at Canadian banks, which have weathered the recession better than other institutions.
Banks in the United States and elsewhere that received far more in government bailouts than Canadian banks have still been able to make tidy profits simply by conducting business as usual, Bolland said.
Therefore, Carney's message to banks is about what to do with that money in order to emerge from the economic crisis and ensure their long-term viability.
"The message Mark Carney wants to send out is, 'Restore your capital. Restore your ability to make loans in the future. Don't redistribute that wealth to either your executives in the form of bonuses or salaries or those kinds of things, or even as dividends to your shareholders,'" Bolland told CTV News Channel.
At one point in his speech, Carney told bankers to get ready for new regulations on executive pay and bank capitalization.
"The industry should be in no doubt that capital requirements are going up," Carney said.
Bolland said Carney is also likely frustrated with the slow pace at which global financial institutions are reviewing and adopting new regulations.
For example, the U.S. government is studying so-called 'say-for-pay,' a system whereby bank shareholders would have a say in what executives are paid.
Banks in Canada are already working together to create a say-for-pay system, Bolland said.
"That's a big step forward," Bolland said. "And yet again shows how the Canadian banks are leading the way in terms of global banking self-regulation."
As for the banking sector's future, Carney said that while this time banks were saved by infusions of government cash, the banks themselves must assume the risk in future, even at the risk of failure.
"There is a firm conviction among policy-makers that losses endured in future crises must be borne by the institutions themselves," Carney said.
With files from The Canadian Press
