Bank of Canada Governor Mark Carney, appears before the House of Commons Standing Committee on Finance on Tuesday, Nov. 1, 2011.Sean Kilpatrick/The Canadian Press
Mark Carney, who today is almost certain to be named head of the Financial Stability Board, will use the role to push countries to impose stricter rules on very large banks - the ones that could take down the global economy if they were to fail.
That task is delicate enough. What could make it even tougher for Mr. Carney is the strong likelihood that no Canadian bank will fall into this category.
Mr. Carney, who as FSB chairman will lead an international group that seeks to guide the regulation of the financial industry, could find himself fielding accusations that he is favouring the home team. This is important, because according to a Canadian official at the G20, the FSB will soon have "broader powers and legal status," suggesting it may eventually be able to enforce its will more easily.
As part of the Group of 20's push to rewrite the rules of global finance to prevent future meltdowns, regulators want to make the world's largest and most interconnected banks hold more capital in reserve than smaller ones. That would force them to be more cautious about their lending and investing activities, which could crimp their profits. The idea is to prevent a repeat of the 2008 banking crisis, when the failure of a single large Wall Street institution created a domino effect that quickly paralyzed the world's credit markets.
Several of the planet's most powerful bankers have railed against the proposal, arguing it will limit their lending so much that the economic recovery could be in jeopardy. Jamie Dimon of JP Morgan Chase and Co. even went so far as to call it "anti-American," since most of the biggest banks are in the U.S., if they're not in Europe or Japan.
The official list of globally significant banks is still being worked out, but no Canadian bank is expected to be tagged.
As the FSB grows in stature, Mr. Carney may need to counter any impression that he's giving Canada a hometown discount on reforms.
"Sooner or later some people are going to be taking shots at him publicly, and I think the easiest one is what Jamie Dimon did - that these regulations are grounded in anti-Americanism, or anti-fill-in-the-blank nationality,'' said Ian Lee, a professor with Carleton University's Sprott School of Business and a former banker.
"He may have to take some jabs at Canadian banks, just to show that he is not biased, that he is not there to carry their water."
Prof. Lee reckoned this could come in the form of pointed remarks about the need for Canadian banks to remain vigilant in their lending, given near-record levels of household debt and a global economic environment that suggests interest rates may be close to rock-bottom for another year.
As recently as Wednesday afternoon, in testimony to the Senate Banking Committee in Ottawa, Mr. Carney stressed that he is not "complacent" about Canadians' debt load, or about the housing market in general, which the central bank believes has shown signs of overheating in some cities.
Earlier Wednesday, Julie Dickson, who runs the Office of the Superintendent of Financial Institutions (OSFI), wrote to banks for the second time in two months, urging them to be "extra diligent" in their lending standards.
"Given the current uncertainty and volatility in global capital markets, historically low interest rates, higher Canadian borrower debt-to-income levels, and relatively strong housing price appreciation," Ms. Dickson wrote, "OSFI expects [lenders]to be extra diligent in maintaining sound and prudent mortgage underwriting practices."
The unmistakable message - a timely one, from Mr. Carney's perspective - was that Canadian authorities are on the case and will not let their banks rest on their laurels or insulate them from tougher rules, whenever applicable, even though they are among the soundest institutions in the world.
OSFI's stated position is that none of Canada's banks are large enough to be globally systemically important, and that Canada's capital requirements are already stringent enough that even the largest Canadian banks will not be forced to hold additional capital beyond what existing standards require.
That helps explain why Canadian institutions don't seem concerned about what Mr. Carney's new role could end up meaning for them. The Bank of Canada Governor is already an influential figure in international efforts to overhaul the rules of finance, so his positions on the key issues are well known.
"One of the reasons he has become chairman is because he's been so influential in terms of his role within the Financial Stability Board and G20,'' said Gordon Nixon, chief executive officer of Royal Bank of Canada. "So he's always had to balance representing the Canadian interest and representing the global perspective, and I think he manages that very well. I don't think him becoming chairman is going to change that one bit."
With a file from reporter Eric Reguly in Cannes, France
With a file from reporter Eric Reguly in Cannes, France