Too Little for Too Long

At the end of September, the Institute of International Finance held its annual meeting in Washington.  The IIF is a global association of financial institutions, whose mission is to “support the financial industry in prudently managing risks, including sovereign risk; in developing best practices and standards; and in advocating regulatory, financial, and economic policies that are in the broad interest of [its] members and foster global financial stability.”

Prominent on the agenda was international financial regulatory reform, over which considerable debate is ongoing. On the one hand, the G20 plan tougher financial regulatory requirements.  The IIF, on the other hand, while acknowledging the need for reform, calls for a cautious approach, arguing that stricter rules could compromise a fragile economic recovery.  In his speech to the IIF’s annual meeting, Bank of Canada Governor Mark Carney was critical of the IFF’s position, in part because it fails to assume any economic benefit from reducing the risk of future financial crises and because banks already have until 2019 to adapt to the changes. The contrasting viewpoints are summarized succinctly in this Globe and Mail article by Kevin Carmichael, titled “Carney, Waugh spar over new banking rules” (September 26, 2011).

Bank of Canada Governor Mark Carney

What jumped out at me from Mr. Carney’s remarks is this gem of a quote:  “If some institutions feel pressure today, it is because they have done too little for too long, rather than because they are being asked to do too much, too soon.

This statement reflects the reality that increasing demands for transparency, accountability, ethical behaviour, and consideration of non-financial material issues (like environmental, social, and governance issues) have been apparent for some time, and there is diminishing justification – and tolerance – for delayed action.  This is relevant not only to financial institutions, but to other corporate sectors as well.

The pressure to which Mr. Carney alluded will only increase with prolonged inaction, as the gap between corporate behaviour and performance and emerging stakeholder expectations and regulatory requirements continues to grow.

 

Click here for Governor Mark Carney’s full remarks to the IIF.

Click here to link to the IIF’s paper, “The Cumulative Impact on the Global Economy of Changes in the Financial Regulatory Framework” (September 2011).

Click here to link to the IIF’s latest paper on cumulative economic impact of regulatory reform, addressing revisions (October 2011).

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