Friday, May 22, 2015

Mr Carney's U-turn on Shadow Banking

Just used the digital archive of the Financial Times to go through the official statements made by Mark Carney, as governor of the Bank of England and chair of the Basle-based Financial Stability Board one of the world's most important central bankers and financial regulators. In other words, his statements not only have powerful perfomative consequences for the political willingsness to cut Big Finance to size but also provides an excellent overview of the mode of thinking among the dominant players in present day monetary diplomacy. I have put the quotes in chronological order. What is striking to see is how early his U-turn was. As early as April 2012 some at least had seen Mr Carney's true colors. It would take a further 19 months for Mr Carney to come out of his pro-finance closet. You can draw your own conclusions about what this professes for the post-crisis financial landscape.

Here are some, chronological ordered statements of Carney on shadow banking, as quoted in the FT, illustrating the gradual reassessment of shadow banking.

September 26, 2011: ‘Mr Carney said shadow banking was “at least as large as the regulated sector… [but] often unregulated and/or overseen by authorities without a systemic focus. This should change.”’

January 15, 2012: ‘Shadow banking must be dragged into the harsh light of day and both it and global banks must be forced to serve the real economy, one of the worlds top regulators has warned.

April 9, 2012: ‘Some policymakers, such as Mark Carney, the new head of the Financial Stability Board – which oversees global regulatory reform – believe the answer is to embrace the world of “shadow banks”, the loose collection of non-bank financial groups.’

September 9, 2013: ‘The G20’s aim is to turn shadow banking from a source of risk to a source of resilience, diversifying sources of financing in a sustainable way.'

October 24, 2013: ‘Agreeing there was no hiding place for shadow banking, Mr Carney said he wanted to turn their operations towards “market- based finance… One of the themes of what I was trying to say was that good markets have robust infrastructure ... and much of shadow banking doesn’t meet the required criteria.”’

June 15, 2014: ‘When conducted appropriately, [shadow banking] can be a valuable alternative to, and provide competition for, banks in funding the real economy. Diversifying sources of finance makes the provision of the credit that is essential for growth more plentiful and more resilient.’

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