Canadians should celebrate the success of their central bank governor, Mark Carney, whose appointment as governor of the Bank of England was announced this week. Prime Minister David Cameron needs an exceptionally gifted central banker to keep order in the banking and investment world of the United Kingdom and he may have found the right man in Mr. Carney, who will take up his U.K. duties in July.
Mr. Carney has earned golden opinions in central banking circles since Prime Minister Stephen Harper and Finance Minister Jim Flaherty appointed him governor of the Bank of Canada in February 2008. When the finance ministers and central bankers of the leading industrial nations created the Financial Stability Board, based in Basel, Switzerland, to improve reporting and regulation of the banking world following the 2008 credit meltdown, they made Mr. Carney chairman. He has earned praise for pressing that work forward, describing the weaknesses of bank regulation and inquiring into poorly understood dark corners of the banking and shadow-banking worlds.
The Bank of Canada aims, above all else, to preserve price stability and so maintain the value of Canada's money. This has been easily done on Mr. Carney's watch since Canada and its trading partners have been in recession or on the edge of recession as long as he has been on the job. In his first year as governor, as credit contracted around the world and central banks made credit as cheap as possible, Mr. Carney brought the target for the bank's overnight rate rapidly down to 0.25 per cent and then slowly back up to one per cent, where he has held it for the last two years. Canadian prices have remained stable, as they naturally would in a period of slow growth and high unemployment.
Canadian labour unions and the federal New Democratic Party have occasionally argued that Mr. Carney should have made credit still cheaper and allowed the exchange value of the Canadian dollar to fall. The NDP for a while complained that Canada was suffering from "Dutch disease" -- a high-priced currency inflated by commodity export earnings, damaging the country's manufactured exports. Mr. Carney politely but firmly rejected these criticisms in speeches in August and September, one of them at a Canadian Auto Workers convention in Toronto. Those speeches showed his knack for explaining the subtleties of economic policy even in the face of criticism.
The U.K. is in the midst of reorganizing its financial supervision. The former Financial Services Authority is being wound up. Consumer protection work is being passed to a new body, the Financial Conduct Authority, while the job of keeping banks and bank-like companies solvent is being passed to a new subsidiary of the Bank of England, the Prudential Regulation Authority. Mr. Carney will therefore take on the task of evaluating the risks British banks and other financial firms are taking with their assets and steering them away from catastrophe -- a task that in Canada is done to some extent by the Office of the Superintendent of Financial Institutions.
In his work at the Basel-based Financial Stability Board, Mr. Carney has warned steadily about the too-big-to-fail phenomenon. Finance ministers would often like to let imprudent banks stew in their own juice -- and go out of business if necessary -- when they gamble and lose. But when push comes to shove, governments are more inclined to refinance the largest banks and keep them in business rather than let all their customers suffer. Mr. Carney's new duties will put him squarely in the middle of deciding which risky business deals should enjoy government approval and how far entrepreneurs should be allowed to take their own risks and enjoy or suffer the consequences. His experience with cautious Canadian bankers may not have fully prepared him for enforcing prudential standards among City of London wheelers and dealers. Canadians should wish him a continuation of the good luck he has enjoyed so far.