Carney says victory in sight if G-20 stays firm

by Bloomberg

VIENNA • Ten years on from the start of the financial crisis, Mark Carney came close to declaring victory in the long campaign to repair the “fault lines” that caused the global meltdown.

Carney, head of the Financial Stability Board (FSB), reeled off regulators’ accomplishments, including better capitalised banks, reduced risk of big public bailouts, a thorough reform of the derivatives markets and a decline in the most dangerous activities of so-called shadow banking.

One of the biggest threat to all these achievements, he said yesterday, is “reform fatigue”.

He warned the leaders of Group of 20 (G-20) countries, who convene in Hamburg on Friday, that if their commitment to implementing global standards slips, this could “erode the willingness of G-20 members to rely on each other’s systems and institutions and, in the process, fragment pools of funding and liquidity, create inefficiencies and frictions, reduce competition and diminish cross-border capital and investment flows.”

Carney, whose term as head of the FSB ends later this year, devoted his annual report to laying out the successes of the global response to the crisis and to a call for the remaining work to be completed. Outstanding tasks including reaching a deal on finishing the Basel III capital framework and addressing possible risks posed by the growing asset management industry.

With talks in the Basel Committee on Banking Supervision caught in a deadlock between European banking powers and the US, Carney called on G-20 leaders to “insist on the timely completion” of negotiations to “lock in the benefits of a resilient international banking system, equipped with the regulatory certainty to lend and invest, supported by a level playing field of consistent international standards”.

The FSB also said that after it completes work to implement recommendations for tackling structural vulnerabilities in the asset-management industry, it could resume efforts to identify firms that could pose a “systemic risk from distress or disorderly failure”. Regulators and the asset management industry clashed repeatedly in the past few years, with firms such as BlackRock Inc and Fidelity Investments arguing that authorities misunderstood the nature of the asset-management business and inappropriately compared them to to banks. Banks designated as systemically important face higher capital and other requirements to help them withstand losses in

a potential downturn. Meanwhile, Bank of England (BoE) facilities staff voted to go on strike over pay in the first action of its kind at the central bank in 50 years, according to a labour union.

Ninety-five percent of Unite’s members in maintenance, security and the private offices of senior officials at the BoE — known as the Parlours — backed industrial action between July 31 and Aug 3, Britain’s biggest labour union said in an emailed statement. It called on governor Carney to personally intervene and said it may escalate the plan if management fails to resolve the disagreement.

Wages and staff morale have long been issues at the BoE. The latest row has been caused by management granting weaker than inflation pay increases for the past two years, with the overall annual wage bill projected to rise by only 1% from March 2017, according to Unite.

Consumer prices rose 2.9% in May from a year earlier.

The Parlours, a series of grand stately rooms served by butlers, house the offices of Carney and his deputies.

“The governor can no longer turn a blind eye to what is happening on his own patch,” said Mercedes Sanchez, a Unite regional officer. “The result of the bank’s unwillingness to negotiate fair pay will be that the bank’s sites, including the iconic Threadneedle Street in the City of London, will effectively be inoperable.”

As salaries for employees will be decided individually by line managers, some will receive less than 1% and up to a third will get no pay increase at all in 2017, according to Unite. Still, the plans may also allow for individual wage gains greater than 1% depending on headcount changes.

The BoE said staff that participated in the Unite ballot made up about 2% of its workforce, and should the industrial action go ahead, it has plans “so that all sites can continue to operate effectively”. Management will continue to hold discussions with the union, it said in an emailed statement. — Bloomberg