* Carney says lack of trust in bank system slows recovery
* G20 has made progress; but bankers must build core values
* Progress overshadowed by Libor, other banking scandals
* Carney sees 2013 progress on "too-big-to-fail" banks
By Russ Blinch
LONDON, Ontario, Feb 25 Banks and regulators
must do much more to rebuild the trust in the financial system
that was shattered in the recent crisis, Bank of Canada Governor
Mark Carney, head of the G20's Financial Stability Board, said
The Group of 20 leading economies has made progress on
financial reforms and that will go a long way, but these alone
will not be sufficient, Carney said in a speech to business
students at the University of Western Ontario in London,
"Virtue cannot be regulated. Even the strongest supervision
cannot guarantee good conduct. Essential will be the rediscovery
of core values, and ultimately this is a question of individual
responsibility," he said.
Carney's comments on regulation are being closely watched by
British bankers. He will leave Ottawa to become governor of the
Bank of England in July, taking over as the UK's central bank
expands its oversight of the financial industry.
The lack of trust in major banking systems "deepened the
cost of the crisis and is restraining the pace of recovery,"
Carney said in the speech.
"There is a growing suspicion of the benefits of financial
deregulation and cross-border financial liberalization, a
suspicion that could ultimately undermine support for free trade
and open markets more generally," he said.
Carney said progress in the G20's financial reforms was "not
yet fully reflected in market valuations or public attitudes,"
lamenting that the good work done so far had been overshadowed
by a spate of scandals, including one involving the rigging of
Libor interest rates.
In a question-and-answer session, Carney said he expected to
make major progress this year on banks deemed too big to fail.
"We have not ended too-big-to-fail for individual
institutions. We did not expect that we would have ended
too-big-to-fail at this point in time, particularly in the major
crisis economies, given the scale of the organizations, given
their own liquidity needs and other factors," he said.
"But what's required to move this forward ... is to ensure
that there is a large component of the capital structure that
can be converted effectively into equity if they run into
Progress in this regard is most advanced in Britain and the
United States, he said.
Reduced trust in the financial system has increased the cost
and lowered the availability of capital for non-financial firms,
with access to credit remaining strained despite the massive
response of central banks, he said.
Carney spoke of the risk of the balkanization of the banking
system as some supervisors try to ring-fence bank subsidiaries
in their own jurisdictions to make sure they are resilient on a
Ironically these efforts would reduce the resilience of the
global financial system, and if left unchecked could
substantially decrease its efficiency, he said.