Can mark Carney kick-start the Financial Stability Board?

• Author: Kranc, Joel
• Position: GLOBAL GLANCE - Conference notes

The latter half of 2011 has been a contentious time for global markets and for those trying to bring the world economy back from the brink. Election season in the United States has driven further divides into the political dialogue, with the "Occupy" movements around the world highlighting discontent and markets remaining volatile with little evidence of a sustained recovery in the near future.

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One organization--not unlike the International Monetary Fund or the World Bank--was created by the G-20 members in 2009 to guide global bank policy and strengthen the balance sheets of financial institutions: the Financial Stability Board.

Created by the G-7 in 1999 as the Financial Stability Forum in the wake of the Asian financial crisis, FSB develops and promotes regulatory and supervisory financial sector policies in collaboration with international financial institutions. The board also works with the IMF to conduct "early warning exercises" and advise on best practices in meeting regulatory standards.

FSB's former head--Bank of Italy Gov. Mario Draghi--has stepped down and Mark Carney, governor of the Bank of Canada, is his successor.

Canada's Minister of Finance Jim Flaherty has weighed in with public support for the appointment. "Mark is highly qualified. I certainly support and have taken steps to encourage this to happen ... he certainly is well qualified for the job," Flaherty said in a recent statement.

Carney is recognized around the world as having aided in the successful navigation of the financial crisis in Canada and as a strong supporter of the Basel III Accord, which requires banks to keep a higher degree of capital on their balance sheets.

In fact, in late September, Carney was taken to task--by Jamie Dimon, CEO of JPMorgan Chase & Co.--for his support of increased capital reserves. Dimon publicly chastised Carney for a speech Carney had given in Washington expressing the need for regulations that would impose higher capital requirements on large banks.

Paper Tiger?

Even with a staunch supporter of stronger bank capital requirements like Carney on board, what kind of teeth does FSB have to enforce or change behavior around the world?

FSB does not have enforcement powers, such as the ability to sanction, punish or take direct actions toward institutions not complying with its policies, notes John Palmer, chair of the Toronto Centre and former head of the Office of Superintendent of Financial Institutions in...