June 10, 2015

Mark Carney: But what are we to do with the irresponsible and unethical behavior of bank regulators?

Sir Caroline Binham and Martin Arnold reports that “Mark Carney, the BoE governor, announced an end to “the age of irresponsibility” and ethical drift, with the introduction of tougher criminal sanctions for market abuse that will be extended to parts of the financial system that have been left alone.” “UK bank governor outlines tough rules” June 11.

Great! That has been long overdue.

And it is also great that Mark Carney acknowledges “the BoE itself was to blame for some failings in markets — including both the Libor and forex scandals — [and] wants a new code of conduct to extend principles of the senior managers’ regime to his staff all the way up to the governor.

But, what are we to do with the irresponsibility and ethical drift of bank regulators? I refer to those who have abused and manipulated credit markets, by imposing and keeping in place credit-risk weighted capital requirements for banks. To thereby allow banks to earn higher risk adjusted returns on equity when lending to those perceived as safe, than when lending to those perceived as risky, is both highly irresponsible and highly unethical.

It is highly irresponsible because it completely distorts the allocation of bank credit to the real economy. That affects negatively the opportunities for our young and unborn to find decent employments.

And it is highly unethical because it favors those already favored by the banks, and discriminates additionally against the access to bank credit of those already discriminated by the banks. And that, by killing opportunities, is a first class inequality driver.

Mark Carney, you are the Chair of the Financial Stability Board, and therefore you share in the responsibility for the above, tell us, what do you suggest we do with you?