(Repeats with no change)
* New BoE head could be tough on banks meeting Basel rules
* Carney had picked other options over quantitative easing
By Jeffrey Hodgson
TORONTO, Nov 27 Britain can expect its next
central bank chief to be tough with its banks while being more
nimble on monetary policy than his recent hawkish talk might
Canadian central bank chief Mark Carney, named on Monday as
the next governor of the Bank of England, gained
a reputation on the global stage by challenging some of the
world's most powerful financial executives to make their banks
less risky, even if it left them less profitable.
Carney's approach to regulation has been "tough rules with
some discretion, as opposed to tough rules with no discretion
... or simply weak rules," said Edwin Truman, Washington-based
senior fellow at the Peterson Institute for International
As head of the Financial Stability Board, set up by the
Group of 20 top economies to try to ensure there is no repeat of
the global financial crisis, Carney has been a key player in
leading the drive for new rules on banks.
Next year the Bank of England will take charge of British
financial regulation as well as monetary policy, making Carney a
key player in how the City of London is run.
Britain's bankers will not have forgotten his clash last
year with the head of JPMorgan Chase & Co.
Jamie Dimon referred to requirements that banks set aside
more capital as a buffer against future crises as "cockamamie
nonsense," according to one of the attendees at the closed-door
Carney, who spent 13 years with Goldman Sachs Group Inc
, reportedly told Dimon the rule changes are a
"reasonable" response to the financial crisis before leaving the
room visibly angry.
In the past year, Carney has not wavered from his stance on
the need for the Basel III rules, which require banks to hold
more capital. Just last month, he was quoted as saying the idea
that global banking reforms should be watered down or delayed to
protect a weak global economy is "fanciful."
"He's been clear the changes need to occur to assure that we
don't pay the kind of costs that we did during the sub-prime
mortgage crisis," said Derek Burleton, deputy chief economist
with TD Bank Financial Group. "That's the message that he'll be
delivering in London.
Carney may be less sympathetic to suggestions Britain's
banks be forced to fully separate their retail and investment
banking operations, a move suggested by a senior regulator.
Canada's six largest banks all have major investment banking
arms. As Bank of Canada governor, Carney has not spoken out
against this model for the industry.
Instead, Canadian policymakers have looked to regulation and
supervision to prevent the blowups that led to taxpayer bailouts
in other countries.
If the new Bank of England governor does feel British banks
are falling short on any front, they can expect to hear about it
in public. In Canada, Carney used his bully pulpit to warn about
high household debt levels and the risks of the booming housing
He also courted controversy in August by accusing Canadian
companies of sitting on piles of "dead money", saying they
should invest it or return it to shareholders. Large British
companies are in a similar position of having cash to invest,
but little appetite to do so at a time of high economic risks.
FLEXIBLE ON MONETARY POLICY
On the critical issue of monetary policy, Carney's
longer-term track record suggests he is more likely to be
flexible than harbor an easing or tightening bias.
This year Carney has sounded hawkish. The Bank of Canada in
April became the only Group of Seven central bank talking about
raising interest rates.
It was also the first G7 central bank to tighten policy
after the financial crisis, lifting its main policy rate three
times in 2010.
But analysts noted Carney has generally been pragmatic on
policy, deftly changing course when conditions merit.
Faced with fresh global economic headwinds, Carney last
month scaled back the central bank's tightening bias, saying a
rate increase was "less imminent". And the bank's main policy
rate has stayed frozen at 1 percent for more than two years.
"I don't think it's obvious at all that he has a hawkish
bent. The fact that the BOC has a hawkish bias reflects more the
underlying economic situation rather than a (view) that Mr.
Carney has," said Doug Porter, deputy chief economist at BMO
Unlike the Bank of England, Carney decided against using
quantitative easing - the buying of debt with newly created
money. This was largely because Canada's economy never weakened
enough to warrant it. The BoE has racked up 375 billion pounds
($600 billion) of government bond purchases.
By contrast, under Carney the Bank of Canada pioneered using
a commitment to long-term low interest rates as a policy tool,
one that BoE has rejected using so far.
In 2009, the Bank of Canada offered a conditional commitment
to hold rates at a record low 0.25 percent until the middle of
the following year, a tactic that has since been picked up by
U.S. Federal Reserve.
Carney may need such inventive measures given the struggles
of Britain's economy, which has had two recessions since the
Carney's "strength going into this position is he will
assess and be able to adapt appropriately, so not go in
doctrinaire, being hawkish or dovish," said William Horton,
chief investment officer with Canadian fund manager MD Physician
(Additonal reporting by Randall Palmer in Ottawa, David
Milliken in London and Jonathan Spicer in New York; Editing by