Bankers must shake off their belief in “market fundamentalism” and treat their job as a vocation to win back the public’s trust, according to Bank of England governor Mark Carney.
In a speech to the Inclusive Capitalism conference in London last night, Carney said “market fundamentalism” in the form of light touch regulation and the belief that bubbles cannot be identified had directly contributed to the financial crisis.
He said banks had operated in a “head I win tails you lose bubble” because of the ”too big to fail” problem.
He added: “In the run-up to the crisis, banking became about banks not businesses; transactions not relations; counterparties not clients […] When bankers become detached from end-users, their only reward becomes money. Purely financial compensation ignores the non-pecuniary rewards to employment, such as the satisfaction from helping a client or colleague succeed.”
He welcomed the establishment of the Banking Standards Review Council, an industry body tasked with improving standards in banking. He said: “A meaningful change in the culture of banking will require a true commitment from the industry.”
Carney added banks must see their work as a “vocation” and do more to meet higher standards. He said banks have developed codes of ethics but looking back over the string of scandals in the industry he questioned whether their staff had taken them on board. He said: “There should be clear consequences including professional ostracism for failing to meet these standards.”
His comments come after IMF managing director Christine Lagarde used the same platform to attack banks for “fiercely” resisting reform.
Carney said the too big to fail problem was one of the biggest contributors to a loss in public trust in finance. While the UK Government and Europe have been working to end the too big to fail problem by separating retail and investment banks and increasing capital buffers, Carney said more needs to be done and that the Financial Stability Board is developing proposals for “total loss absorbing capacity”.
He said: “This is the year to complete that job.”
Carney argued central banks can contribute to an “inclusive capitalism” by encouraging those working in financial services to think about their impact on a broader system.
Setting out what he believed to be the foundations of inclusive capitalism, Carney said “dynamism” is essential, as are the shared values and beliefs in a society.
Carney said societies aspire to the “trinity of distributive justice, social equality and intergenerational equity” because relative equity is good for growth, while inequality is a major determining factor of “happiness” and because they appeal to a “fundamental sense of justice”.
He said: “Just as any revolution eats its children, unchecked market fundamentalism can devour the social capital essential for the long term dynamism of capitalism itself.
“To align incentives across generations, a long-term perspective is required. For markets to sustain their legitimacy, they need to be not only effective but also fair. Nowhere is that need more acute than in financial markets; finance has to be trusted. And to value others demands engaged citizens who recognise their obligations to each other. In short, there needs to be a sense of society.”