OTTAWA (Reuters) - As a young hockey player with dreams of making it big, Mark Carney liked to get revved up before a big game by listening to AC/DC’s “Hell’s Bells.”
“Coming on like a hurricane” and “take no prisoners”, as the lyrics go, pretty much sum up the Bank of Canada Governor now as he prepares to take on the world’s most powerful banks as head of the Financial Stability Board, the key driving force behind the reform of global financial regulation.
The still-athletic, 46-year-old is certain to get the job, according to sources who spoke to Reuters on condition of anonymity, although he must wait for G20 leaders to give him their formal blessing at a Nov 3-4 summit in Cannes, France.
Carney, fondly described as “un-Canadian” by one Ottawa official because of a blunt and confrontational style, will replace the Bank of Italy’s Mario Draghi, who takes over as president of the European Central Bank on November 1.
Carney’s past as a Goldman Sachs investment banker has been a double-edged sword, as he fought to prove his loyalties lie with ordinary citizens, not his high-flying banker buddies. He clashed memorably with JPMorgan Chase & Co Chief Executive Jamie Dimon in Washington last month as the banker argued against new regulations for the financial sector.
At the same time, the financial markets savvy Carney won over 13 years at Goldman’s offices in London, Tokyo, New York and Toronto has propelled his meteoric rise from the finance ministry to his current job.
He heads a well-respected central bank that helped make Canada’s recession one of the weakest in the rich country group. No Canadian bank needed government help during the world financial crisis, and already by January, the country had recovered all the jobs it lost in the downturn.
The Bank of Canada would not comment until after a formal announcement on the FSB, but Carney is set to head the board at a time when bankers are pushing back against tougher capital requirements designed to strengthen financial institutions so taxpayers won’t have to rescue them in the next crisis.
The regulators say the new standards will help prevent another crippling crisis, or at least minimize the damage, and they insist the global economy itself is at risk if they get things wrong.
Bankers say the crackdown will crimp their lending and hit economic growth. They particularly oppose a capital surcharge on the biggest 28 cross-border banks, including Carney’s former employer Goldman, HSBC, Deutsche Bank and JPMorgan Chase, the institutions that are considered too big to fail in today’s interconnected financial world.
Carney’s challenge will be to keep reforms moving on even as cracks and slippages appear, and to “name and shame” countries that don’t deliver on their promises.
In Reuters interviews, several people who interacted with Carney during his public service career stressed two traits that will help him: he’s a fighter who does not back down and he speaks the bankers’ language.
“I think he believes he has a halo over him. He’s pretty ... confident, for lack of a better word,” said a Canadian academic who has met Carney at meetings and seminars. “You may not want to have dinner with that person but as head of the FSB I think it’s a good choice.”
Carney has the “chutzpah” needed, agrees Chris Ragan, a former special advisor at the Bank of Canada who has overlapped with Carney at the central bank and in government. “If he has a view that he holds strongly, he’s absolutely prepared to fight for that. He’s not a wallflower.”
The FSB brings together G20 central bankers, finance ministers and regulators to craft and coordinate financial regulation in what has so far been a pretty unglamorous job.
But that could change if, as expected, the G20 gives the board additional resources and independence from the Bank for International Settlements in Basel, Switzerland, boosting its clout and making it more like the International Monetary Fund and the World Bank.
“It needs to move beyond a very Mickey Mouse operation of just 20 people,” said Bessma Momani, a research fellow at the Center for International Governance Innovation at Waterloo, Ontario and a panelist on FSB governance for the Washington-based Brookings Institution.
“With the systemic problems we’re dealing with we need something bigger and more substantial. We need a full-time person that is devoted and focused on the FSB mandate.”
Carney intends to stay on as Bank of Canada governor, but if the revamped FSB requires a full-time chair he may have to abandon the bank before his seven-year mandate ends in 2015.
The only other serious contender for the job was Swiss National Bank’s Philipp Hildebrand, a friend of Carney’s from their Oxford student days. But a European official told Reuters he was certain Carney would win over his former classmate.
Finance Minister Jim Flaherty and banking regulator Julie Dickson, who sits on the FSB Steering Committee, have gone on the record saying Carney’s chances are good.
Formally, it is up to the FSB plenary to choose the chairman by consensus. But sources say the negotiations are largely done behind closed doors with little transparency.
As head of the Bank of Canada, Carney has made it clear that despite his Goldman Sachs background - or perhaps because of it - he believes banks have acted in questionable ways and he is ready to confront them.
Of all his speeches, the ones to banker audiences on financial reform have been the most sharply worded.
A few months after becoming governor in February 2008, Carney earned the wrath of Canadian bank CEOs by suggesting they were hoarding cash and not lending enough to businesses.
That spat is long forgotten, but Carney locked horns with Dimon at a private bankers’ meeting in September and left abruptly, prompting headlines about a walkout. The Bank of Canada said the meeting was running late and he needed to get to another engagement.
And while bankers often disagree with him, they respect his mettle and intellect.
“He would have been less likely to take on Jamie Dimon if he didn’t know the way those guys think and if he wasn’t able to speak their language,” said Ragan. “They can’t say, hey you’re just some egghead that works in the government.”
A source who witnessed how Carney handled the confrontation confirmed Ragan’s hunch. “He comes across very well because he is a former private sector financial guy. He understands their perspective,” the source said.
Gordon Nixon, the chief executive of Canada’s biggest bank, the Royal Bank of Canada, is also a fan.
“I‘m very fond of him,” Nixon told Reuters. “He’s not just respected and admired but he’s well liked as an individual... In these roles part of your responsibility is to build consensus and I think Mark brings a real personal strength to that requirement.”
Other central bank governors liked Carney enough to appoint him as chair of the very influential Basel committee on global financial stability, notes David Longworth, a deputy governor under Carney until May 2010.
“I think a chair of an international body is always important,” said Longworth. “That person helps to set the tone, they help to set the agenda. They, at times, have to be people who will convince others to come on board.”
But Carney’s investment banker hustle and dominant personality have not gone over so well with some at the Bank of Canada, creating friction and bitterness.
Carney completely overhauled the senior ranks of the bank when he took the job, replacing four of five deputy governors who decide interest rates with him. On paper, decisions are made by consensus but privately, officials have reportedly joked that they always “agree” with their boss.
Carney does not suffer fools gladly and finds it hard to hide his annoyance if he dislikes a question. He has a reputation for losing his temper with bank staff, and has been known to yell at employees in front of others for minor missteps in outbursts that may include the “f” word.
In February 2009 when the bank’s growth projections were far more upbeat than those of any other forecasters, Liberal legislator John McCallum asked if his outlook went “out on something of an optimistic limb.”
“We don’t do optimism, we don’t do pessimism,” Carney snapped in reply. “We do realism at the Bank of Canada. We don’t do spin.”
Paul Masson, a University of Toronto economist who was special advisor at the bank as Carney took over observed that Carney was “less lenient” with long-winded staff meetings. Carney is focused and informed, so “doesn’t need to be told things several times,” Masson said.
Carney was so confident in his own abilities that he broke with custom and insisted on writing his own speeches, eschewing feedback, and scaled back internal briefings ahead of public appearances.
His communication skills proved less than ideal when in June 2008 a surprise freeze on interest rates exposed a rare disconnect with a market that had unanimously expected a rate cut. Bank economists and traders were perplexed by the sudden reticence to hint at intentions and put it down to Carney’s inexperience in central banking.
His personal life, by comparison, appears simple. He is married with four young daughters and rushes home from international meetings to see the girls before bedtime or attend their soccer matches.
He still has time to run most mornings and last May finished the Ottawa marathon in three hours and 48 minutes.
IT‘S AN ASSET, EH?
Being from Canada is an asset for Carney at the FSB, says Canada’s banking regulator Julie Dickson, noting that international organizations often look to politically neutral countries to broker deals between the Americans and Europeans. Canada has the added bonus of getting regulation right.
“We don’t go in with a lot of baggage, we’ve had time to reflect as well. When you’re in the middle of the crisis as Europe is right now, I think it’s a little harder to step back,” Dickson said.
Nixon agrees, “Given the way the world has unfolded, I would say that being from Canada is not a negative. I think the world looks at the Canadian marketplace and the governance within the Canadian marketplace in a very positive vein.”
Including Carney, Ottawa has three top officials leading committees involved in the global reform process. Dickson chairs the FSB committee on improving supervision and Tiff Macklem, the No. 2 at the Bank of Canada, heads the standards and implementation committee, which is in charge of peer reviews and the “naming and shaming” that may be needed.
Canadian bankers, who have long complained that tougher domestic rules put them at a disadvantage, also welcome the idea of one of their own at the top.
“It would be great for him ... but also good for Canada to have somebody in that role,” said Nixon.
With additional reporting Cameron French in Toronto and Emma Thomasson in Zurich; Editing by Janet Guttsman, William Schomberg and Jeffrey Hodgson