MONTREAL -- Bank of Canada Governor Mark Carney delivered a blunt rebuke to the global financial industry on Monday, saying it had shown insensitivity over high compensation and calling on it to get on board with reforms.
"Relief is in danger of giving way to hubris," he said in the prepared text of a speech. He said the clear priority of the public sector was for banks to conserve their earnings to boost capital and expand credit formation.
Carney said the industry should not doubt that capital requirements are going up, and those who preemptively meet those requirements, rather than pay themselves handsomely, will be in the best possible position over the medium term.
"It would be a mistake to underestimate the determination of G20 leaders to reshape the financial services industry," he said. He added that risks must be returned to, and borne by, the private sector.
Recalling the G20 appeal for sound compensation practices, he said: "The current windfall, dependent as it is on the strongest of safety nets and the policy-driven snap back from the brink, sits uneasily with that principle."
He asked if firms really have a good handle on their medium-term profitability given the profound regulatory and economic changes on the horizon.
"The financial system must transition from its self-appointed role as the apex of economic activity to once again be the servant of the real economy," he added, calling for a change in the industry's attitude.
"Policy-makers had to do many unpalatable things to save the economy from the financial system -- a financial system that begged for mercy," he said.
"We will not remind market participants of the many oaths they swore a year ago," Carney said. "However, we do expect those fevered battlefield vows to be respected through daily peacetime concern for, and contributions to, building a better, more resilient financial system."
Carney also repeated the central bank's economic outlook that he detailed last week, including the view that the current strength in the Canadian dollar CAD= would more than fully offset favorable developments since July.
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