Mark Carney Blasts City Greed In Attack On 'Disturbing' Banker Wealth

Carney Savages 'Disturbingly' Rich And Unethical Bankers
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Bank of England Governor Mark Carney, speaks to the audience after delivering his speech "One Mission. One Bank. Promoting the good of the people of the United Kingdom" at the Cass Business School in east London.
Sang Tan/PA Wire

Mark Carney has turned his fire on City greed and the problem of growing inequality as he called for more to be done to clamp down on scandal-hit financial markets.

The Bank of England governor said globalisation had resulted in huge earnings which were "amplifying the rewards of the superstar" while "disturbing evidence" suggested opportunities for social mobility were narrowing.

His remarks are likely to be seen as an attempt to counter claims that the former Goldman Sachs banker was a cheerleader for the City, following a speech last year which was viewed as a departure from the scathing tone of his predecessor as he praised the financial system as a "global good and a national asset".

Carney defend the role of the Bank for stimulating jobs through low-interest rate policies - though he admitted this had also caused a redistribution of wealth that had hit savers.

Carney attacked a belief in "market fundamentalism", which he said through light-touch regulation and ignoring risks contributed directly to the financial crisis and the ensuing damage to society.

He called for more codes of conducts for "specific markets" and new regulations in the wake of scandals over the manipulation by traders of benchmark interest rates such as Libor, and foreign currency exchange.

The governor said in the run-up to the crisis "banking became about banks not businesses" while financial products designed to meet the needs of firms "morphed into ways to amplify bets on financial outcomes".

"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," said Carney, whose own annual pay package is worth £874,000.

Public trust in the financial system had been eroded after taxpayers picked up the tab for financiers' failures, he added.

"Bankers made enormous sums in the run-up to the crisis and were often well compensated after it hit," he said.

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Carney added: "Within societies, virtually without exception, inequality of outcomes both within and across generations has demonstrably increased.

"Returns in a globalised world are amplifying the rewards of the superstar and, though few of them would be inclined to admit it, the lucky. Now is the time to be famous or fortunate.

"There is also disturbing evidence that equality of opportunity has fallen, with the potential to reinforce cultural and economic divides."

Carney defended the role of central banks in slashing interest rates and pumping billions into economies to nurse them back to health in the financial crisis.

He said not to have acted "would have been catastrophic for all" but that the "distributional consequences" had been significant in "benefiting borrowers at the expense of savers".

Carney said redistributing wealth between rich and poor or young and old were political but that in extreme circumstances such as after the financial crisis the Bank could have "some limited influence on social mobility and intergenerational equity".

Central banks had faced "clear risks of a misplaced if not lost generation" which had been sharply reduced in Britain following the Bank's policies.

"These have helped support the strongest job growth on record including record-high transitions back into employment by the longer-term unemployed. Longer-term social mobility will benefit from this track record.

Carney's remarks, at the Conference on Inclusive Capitalism in London, focused on four key areas of where reform to the financial system was needed to rebuild trust.

The first was by ending the spectre of "too big to fail" which forced taxpayers to bail out banks whose collapse would severely disrupt the financial system.

This followed earlier remarks in a speech by International Monetary Fund (IMF) managing director Christine Lagarde at the same event that this problem had not yet been solved.

She said there remained an "implicit subsidy still going strongly" amounting to about 70 billion US dollars (£42 billion) in the US and up to 300 billion US dollars (£179 billion) in the eurozone.

Carney also referred to creating "fair and effective markets" as well as current proposals on clawing back bonuses and building bankers' sense of responsibility.

"The combination of unbridled faith in financial markets prior to the crisis and the recent demonstrations of corruption in some of these markets has eroded social capital," he said.

Reforms would help "deliver a more trustworthy, inclusive capitalism", he said.