tv Institute of International Finance Policy Summit Bank of England Governor CSPAN May 5, 2017 4:20pm-4:48pm EDT
onnish visas to six muslim majority countries. this is the first time court is allowing a live audio broadcast of onest cases. that's followed by the case in the travel ban the following monday, may 15th with a three judge panel at the ninth circuit court of appeals in seattle. that will hear an apaefl a district court ruling that blocked the president's ban and halting the u.s. refugee program. >> more from the economic conference with bank of england governor mark carney on the effects of international financial regulations. the institute of international finance hosts the forum. >> thank you very much, tim. thank you all for taking a few moments before lunch, between tax and before lunch. that's a tough -- that's a tough slot. but i wanted to come back to the
iif's washington policy summit. i was last here at a similar gathering in 2011. which was very early in the international financial reform process. and from the iif's perspective of that time and they've done a lot of thought and research about the issues at the time, there were three major concerns about that reform process. the first was whether or not the reforms were consistently implemented across the g-20, secondly, what about regulatory arbitrage, particular fli shadow banking? and thirdly, whether the reform process itself would impair the recovery that was just beginning at the time. and i'm going to start by suggesting that those debates i would suggest have been largely settled to the positive.
they're being consistently and properlily implemented in the g-20 jurisdictions. you don't have to just take my word for that because the progress is being regularly assessed, not just about it iif and yourselves as practitioners, but by the fsb through peer review and by the imf. and in general, what we found is that when countries deviate from the international agreements, i'm uses deviate in a neutral sense here, it's because they chose to go further. so they're super equipment. the second thing we're finding is that we're trying to have an approach. i would argue that we're largely successful in this, in that we're applying a consistent approach to similar risks. they're being treated the same regardless of where they're originating in the system.
they're now on balance sheet and appropriately capitalized. not surprisingly, they're much smaller. and more generally, shadow banking is being replaced by market based finance. market base finance is adding diverse fiction, competition and resilience to the system and looking at your membership, it is adding members to the iif. actually, it reflects much better. they're reflecting the system. that's to tim and others credit there w respect to the macro economic impact, it's apparent for some time that having wealth capitalized is a prerequisite rather than an impediment to growth. in those economies, the reform is the most robust.
indeed, when we look at the look right now, i argue the broader benefits of reform are now being realized. the financial system moved to resilience. the credit is growing. the cost of financing remained low. the biggest question is how do we take advantage of the progress? i'll address three priorities in my remarks today. the first is that the reform implementation process should be dynamic as well as effective. that's really an issue for the
authorities. our objective is not just resilience. it's efficient resilience. we need to resist steps that would praguement the global system. we're taking full advantage of the progress that has been made to build a system of defrns to each other's systems to each other's approaches when they achieve comparable outcomes. i want to read into the record what a difference a decade makes. a decade ago, regulation had become light touch and infective. looming risks in the system were ignored. markets were often fragile and unfair plagued by mum us are instances of misconduct and
insufficient market discipline on large firms. they focused on the short term. after the lehman debacle, the g-20 leaders committed to a radical reform. they created resill yenlt banks, ending too big to fail, transforming shadow banking into market base finance and making derivative market safer. there is only one of those politicians i believe who is still in office. surprise for guessing at the end.
a decade on, having taken those questions, they'll be asking the question, what have you done with the last ten years? and the answer will be we have made the system safer, simpler and farrer. or we're in the process of doing so. in terms of making the system safer, the central achievement is the trance formationst banking sector. a decade ago, banks were often woefully undercapitalized and they had complex business models that relied on the good will of markets too often and in the end on taxpayers. the largest global banks can stand on their own. the capital requirements are ten times higher. banks have raised over 1 1/2 trillion dollars of new capital. and the discipline by a new ratio that guard against risks that seem low but prove not. they're also morrow bust because they changed the funding models,
not least to new global liquidity standards. trading assets had been cut in half and interbank lending is down by two-thirds. the series of measures are eliminating the fragile forms of shadow banking while reinforcing the best of market-based finance. the deck add on from the abc crisis, the toxic forms of shadow banking with the large funding mismatches, high leverage and opaque off balance sheet arrangements no longer represent a threat to global financial stability.
they have grown rapidly from around $50 trillion a decade ago to over $75 trillion last year. he quif tloent about 40% now of total financial system assets. and this growth creates new sources of funding and investment, pro moments international capital flows, reduces reliance on bank funding and brings welcomed diversity to the financial system. at the same time, the scale of asset management's importance reinforces the need to minimize
risks of sudden stops in times of stress. they estimate that more than $20 trillion of assets are held in funds susceptible to such risk. so in january of this year, responding to the direction of the g-20 leaders, the fsb finalized the recommendations to address structural vulnerabilities and reduce liquidity mismatches in asset management. and these recommendations are now being operationalized by the group. the system is also simpler because more durable market infrastructure is unhang willing the previously complex and dangerous web of exposures in derivative markets. the decade ago, otc derivative trades were largely unregulated, unreported and bilaterally cleared. in pittsburgh, they announced a series of reforms designed to
make the markets safer and more transparent, including by requiring trade reporting and encouraging central clearing of otc trades. central counter parties reduce con taj enlt risks in banking and they make the massive derivative markets morrow bust. and by the argentinian summit in 2018, the fsb will report on whether any additional financial resources are required to safely resolve ccps.
they're draegs the root causes of misconduct. a decade ago, the large complex banks operated in a heads win, tails you lose bubble. the loss of confidence in private finance that crystallized in the autumn of 2008 could only be arrested by public support over the following year totalling $15 trillion u.s. dollars in public bailouts, government guarantees at bank liabilities and special central bank liquidity schemes. to bring back the discipline of the market and end reliance on puck lick funds, fsb members have agreed standards to ensure that major banks can fail-safely in the future. these include reforms to secure the tools and powers authorities need deal decisively with banks. and at the same time, major banks are required to make they willselves easier to resolve
including by writing living wills. in the event one fails, they can be recapitalized to support the continued organization of the most important activities. the combination of these initiatives and the determination of banks and authorities to complete the job explains why the too big to fail public subsidy for the banks has fallen by 90% in the united kingdom. put simply, a decade on, market discipline is back. the system is also fairer because we're addressing the root causes of misconduct. we all know that in the wake of the crisis, a series of scandals ranging from the selling to manipulation undermine trust in banking, the financial system into some degree, to some degree in markets themselves. the economic consequences of
that lower trust has been enormous. or those events has been enormous. global banks misconduct costs reached over $320 billion u.s. dollars, capital that otherwise could have been to support up to $5 trillion of lending to households and businesses. we have an action plan to address the root causes of the issues through first improvements to banks, governance and compensation structures to align better risk and reward. secondly, new global standards for conduct in fixed markets and thirdly, reforms to major financial benefit -- bench marks in order to reduce the risks of manipulation. should be clear though that authorities cannot and should not try to legislate for every circumstance, watch every transaction or anticipate every market innovation. fines and sanctions have a role in deterring misconduct but
they'll not bring back the cultural change that we all need. the next anti-incentives for individuals and ultimately a more solid grounding in improved firm culture. in the united kingdom, a significant proportion of variable compensation for senior employees must now be deferred for a period of up to seven years. to address the rolling bad apples problem, mechanisms are in place to ensure that when individuals move the history comes with them. it is known to those who consider hiring them. and the fsb is considering whether to adopt such an
approach more broadly. uk authorities have also used their convening power to encourage market participants and it has been the market participants who have done this to establish standards of market practice that are well understood why they're followed and which are dynamic which keep pace with market developments. and that's why the global fic board is establishing understood standards for their markets and it's why next month the fx committees, the global fx committees will release the first consistent code of conduct for fx markets. this -- both of those are examples of the best in the markets, cod fig the best of markets. instead of putting it in legislation or hard black line regulation, our approach in the uk has been to use management
responsibility through something called the senior managers regime. and what that does is addresses, seek to address common refrain of senior management that didn't appear to be aware of the misconduct that was taking place in their firms. it re-establishes the link between seniority and accountability. senior managers are required to take reasonable steps including through training or proper oversight to prevent or stop regulatory breeches in their areas of responsibility. and we're seeing adoption spreading. some firms are are voluntarily applying it or elements of it to their global operations. and the fsb is now reviewing the broader merits of such responsibility mapping.
individual responsibility is returning. so the question i pose at the outset was how do we take full advantage of this progress that's being made full timely and consistent implementation of the g-20 reforms remains essential to deliver a financial system that supports growth in the short, medium and long terms. we must finish the job to build the level rev siof resilience o citizens deserve. but we also must do so as efficiently as possible. implementation must not only be effective, but also must also be dynamic. that is, the authorities must learn by doing and make adjustments as necessary to optimize our efforts without compromising the level of
resilience the reforms are intended to achieve. you'll support a more comprehensive impact analysis and we'll help inform future decisions about any possible adjustments to reforms. as we assess the effectiveness of reforms at global -- at the global level, many national authorities are conducting similar exercises with respect to their domestic efforts. and these are to be welcomed, provided the overall level of resilience is maintained. now my second priority was to resist fragmentation. we should be frank, there are risk that's if left uncheck cod threaten the progress made and ultimately undermine our shared
objective for strong, stable -- or strong, sustainable and balanced growth. the risks include the impact of reform fatigue on implementation momentum, after all a decade is a long time. secondly, the outcox the brexit negotiations, thirdly, the need complete basil three, and, fourth, the forns of finishing the job, truly finishing the job of too big to fail. in many respects, the global financial system is at a fork in the road. on one path, trust and cooperation diminish. fragmentation hardens, capital flows disrupted and trade and innovation are curtailed. if authorities don't have the sufficient confidence that their efforts to promote financial stability are reciprocated elsewhere, then concerns about the risk of -- risk to openness could intensify. and if that happens, domestic
authorities could impose local requirements on domestic entity of foreign firms. they will help with risk management. there is another path which is the high road. it builds on the foundations of a new responsible global financial system, foundation that's have been -- are being put in place after a decade of hard work. kit create an enhanced system of -- can create a system of enhanced he quif lens and mute aol defrns.
such approach would allow capital to move more freely, efficiently and sustainbly between jurisdictions. with robust standards consistently applied, wholesale financial service cobbs brought more fully into trade agreements keeping the global financial system open and resill yenlt and supporting greater trade, investment and innovation. the high road leads to more jobs, higher sustainable growth and better risk management across the g-20. and this high road can be followed if my third priority, taking full advantage of the progress we made is pursued. in this regard, i suggest it's important not just to recognize the progress that has been made, but how it's been made. it's been made through a process that is emphasized collaboration, consensus and openness. the fsb's strength lies in the members. they bring their authorities shared, expertise and objectives. it's not a treaty based
organization. the standards of the fsb do not have direct force in any member jurisdiction. decisions are ultimately a matter for national authorities who act in their own self interest in recognition of the ben fists a resill yenlt and open global financial system. that's what guides and disciplines this reform process. because they're the product and objective of the membership, the fsb reforms can create that foundation for an open global financial system. we now agreed all the common minimum standards and they are now being consistently and transparently implemented.
we achieve similar outcomes. and to seize this opportunity, authorities need to share relevant information and work together to manage cross border challenges to financial stability. we have the mechanisms to do this. they've been developed by the fsb and basal committee through groups such as supervisory colleges for normal times and crisis management groups for cocoa ordination when thing goes wrong. in the decade ahead, we will be in the g-20 increasingly well positioned to take advantage of these building blocks. brexit will be a litmus test of the future of international cooperation. not least because the starting point is so constructive. the uk and the rest of the eu have exactly the same rules. and we have the most highly
developed frame works of super advisory cooperation. the capital and banking markets between the uk and the eu 27 are already highly integrated and the two jurisdictions have the potential to create a template for trade and financial services. my point is a decade on from the start of the financial crisis, the g-20 is building an efficient and resilient financial system that serves all of our domestic economies and secondly, supports sustainable cross border investment and economic activity. as the global recovery strengthens and broadens, now is the time to take advantage of the hard won gains. that means completing this journey from fragility to resilience by ensuring that shadow banking is fully transformed into resill yenlt market based finance. that durable market insfra structure is put in place.
that we complete the job of ending too big to fail and that emerging vulnerabilities are addressed in a timely and consistent manner. it means adjusting reform measures to maximize efficient resilience and avoiding unintended consequence. and it means recognizing that because risk to financial stability are constantly involving, we must work together to identify those vulnerabilities in a timely and consistent manner. this is increasing reliance on the regimes when they achieve similar outcomes. a decade on from the financial crisis now is the time to take the high road to the benefit of all. with that, right on schedule. i thank you, and i give you your
lunch, i believe. >> the new administration has pledged to focus on energy policy that's stimulate the economy and share a security and protect the nation's health. it has already taken steps to eliminate regulatory obstacles on the energy industry. focus on domestic production and revive the coal industry. what can we expect from the new administration going forward? how will potential changes in energy policy and production impact u.s. foreign policy? please welcome our moderator for this panel, the founder and president of the bipartisan policy center and his panelist to the stage. sarah lasitla, director and senior fellow, energy and national security program at csis. katherine mcgregor foran