Mark Carney - Governor of Canada's Central Bank HARDtalk

be here at six. Now on BBC News financial

financial centre has been tarnished again. This time another British

bank, Standard Chartered, stand accused of irregularities will stop

New York's top financial regulator claims the bank carried out $250

billion of illegal transactions with Iran over the last decade. The

Bight refutes these claims. The latest case follows that like other

scandals in London. Moves are underway to tighten banking

regulation. Where does this problem like? We speak to date with Mark

Carney, in charge of steering the new rules will banking as chairman

of the Financial stability Board for the G20 Leading economies. He

is the governor of Canada's Central Welcome. He it's a pleasure. He is

the reputation of London shock? it's not shock. It has taken some

hits there is no question. It's important to distinguish these

events and what's being done in into being used. The UK government

and regulators is at the forefront of implementing and used it of

regulations will does on these. They were putting these in place.

Part of what we see is the aftermath of a dark period in

London's financial history. looking at the allegations around

Standard Chartered, walk about transactions with Iran, taking

place over last Ten News, the financial scandal happen in 2008.

Why does these things to carry on her that you were on bills?,

ultimately that's the question for the institution and the American

regulators that's money these allegations as yet unproven. The

other point is that all institutions had to tonight and

their awareness of what's happening. These are complex banks. They do

with a range of countries and transactions. Executives need to be

on top of that. APEC cannot be on top of that money to Should beer

business activities. Look at pictures BC being fined for money

laundering to Mexico and Barclays Bank be cause of the rigging the

LIBOR. We rode traders at JP Morgan Chase. We have obviously these

things need to be investigated. Standard Chartered has refuted

these clubs. There are others in the UK like the Labour MP in House

of Commons who suspects this is Washington trying to win at a

commercial battle trying to change the trade from London to New York.

Do you think they're trying to exploit these scandals? What's

important is that all, two centres, Major, ninja and cinders, small of

phonic centres such as Canada or other countries, they need to have

confidence in each other. That confidence comes from implementing

reforms. Minute to fix the problems in its current action and be open

with each other and one thing we are doing in the Financial

Stability Board is just designing the rules but also auditing and

trees will be UK it cannot touch. We see what the current momentum

these rules and its patent, we go to the top, the meat is the G-20,

the media and the general public and we will let you know who is on

track and who is behind. You're the chairman of the Financial Stability

Board the G-20. That was set up to bring up her rib youthful

resistance across the G20 and co- ordinate action on an international

level will stop we're seeing some backsliding. Will you no aim no

Aymes? That's interesting the stock or reforms that had been done on

the capital to increase the at the banks called rorted to Ian Cohen

score so at the robust, they make a small mistake but one problem in

this crisis about the links is that it in the use of capital and make

some big mistake and it quickly went bust and interest at the tax

pays at to bail them would stop and stare it has been to say to these

games and you need a lot more capital will stop it and at to be

about seven times more than that have held previously. That's

capital. We put that rude in place and everybody agreed. Winup Ward at

is to insure the rules are exactly what is required and we report on

all of those institutions. When the EU report? We report in November

and we tracked the major banks who has made to back in the world have

increased the capital more than 20% already. There are no win it

position in the next year but if they take profits after tax, they

take proper its they will meet the new requirements. This is the

agreement. UN the mentally the question is, you confident that we

will not major phase of by mental institutions which the taxpayer

needs to coming to bail them? At a huge cost, Mervyn King has said

clearly that he does not want the banks to become a problem with

public finances. He is right. I shoot at you stop everybody shiver

at you stop this is a capitalist system. It institutions make

mistakes they should be abrupt. Bond holders of those institutions.

The capital alone has not sold at. All that the Aussies make it less

likely to happen. What needs to change and what will change and

once in place by this year in the UK and the US and Canada is a

regime so that the authorities and bail them, the bondholders, meaning.

Or are not one International Review to report parity? Regular Tory

authority. We have agreements with my new owners. Widowed at one club

will regulate. As a few reasons for that. It ultimately involves

different legal systems hand bankruptcy codes between the UK and

it and the US, secondly it requires questions of fiscal and budgetary.

But Lee one issue is who is on top of these institutions? Has been

filings warm the regulatory side but that brought that we could have

one club will rip him at a sitting there. War I'm not international

commercial laws? And it's different, international commercial laws and

agreements as opposed to that. We could move towards much more

regulation but that is distinct from actually adding one regulatory

body. But you had the US authorities and at too much it

looked much in London and another problem with the euro crisis

meaning the opera is put pressure on banks retreat and the national

borders because it is the euro break up. That spirit goes against

international rectories is the new Speaker up. The two things. I agree

on the first warning in turns of the dispute between the regulatory

bodies and its want in that the organisations such as the owners

can provide objective perspective is using as discussions to broker

those but about Europe, incredibly important, that's what's happening.

National regulators are encouraging institutions to put victims will to

the detriment of a hobby European financial system. I mean the market

related to that monetary systems. The solution there within the

Common Monetary Unit under the legal system is going to bids it a

single European regular it. Bat under the jurisdiction of the

Central Bank. We'll also owes the wheat Europe pressure on banks to

increase cross-border lending. You see a decline of print for us from

the north to the sound of which is jeopardising recovery. That's the

European problem and something that is a concern was at its is a huge

concern. It is his protectionism? It a form of protectionism but the

monetary union was built up on not against on foundation. There was no

common brick you later. He was no physical relationships between

these countries and not enough labour market within the monetary

and it's the colt will regions as opposed legal reasons and all

others actors make that single monetary unit less robust than of

the US. There are no close fiscal integration. It would be odd to

have won with appear. You use it in Canada that you risen crisis is the

number one problem for you. When you act look at its to do so all

the officers, what do you think was you have confidence? Is two degrees

of dealing with the European crisis. The minimum wage is that the crisis

is contained. There is adequate firewalls put in place so that

Europe and address the deep underlying problems over the course

of a few years and this will take used to rebuild. It's not just

building up political institutions which are essential but at its use

and constitutional issues but to it just underlines structures have

been a Commons, the Spanish economy needs to be more competitive in

comparison to Germany. Putting fiscal houses and will go. This

will take years. What we look for his wall put in place and a

combination of the European binges. Midges I. E I'm and needs to buy

time for these adjustments. Use a bit I am. Can the's position is

that you will not be more money to I am careful pilots to euros.

Government him. The at spinner. It's not just a bottomless pit.

own more but there are many. The position of her government and is

it he's mourning into Europe it should be under the terms, and yet

I am at lending policies that borrows from the IMF and the

entirety of the authority's relative to those countries and

currencies on the other side able to be him and all those entities

including the European Commission as what's called conditions

bringing to do inconsistency to access to the pounds. That's what

happens in all those programs. A neat to get the design right. It

goes back to that climbing. It's not a question of just one of set

of programs. This is an adjustment process. It can ultimately be done

but you just put Prosser's that will take years. Her how many

years? I can come back here in three years and we could still be

talking about this. Win the Governor of the European Central

Bank said in July in London that he would do what it takes to say the

euro, the markets rose thinking he would take robust action. Since

then people said he did create a false impression? The market Ms

raid what you announced one week later. To Rea but wait at Myer at.

The measures announced towards the end of July, but one major images

and the Big Sue in the way to address this crisis. They go

directly to their responsibilities to get rid of convertibility

rescues -- Rees. Countries need to pay more -- Rees. -- risk. He

delivered what he alluded to. you think Winnie the about the

governor or the German bank recently said in an interview in

July I'd at he thinks that policy makers have estimated the Central

Bank's expect eight sheets. Using for price stability and to promote

growth and unemployment and stabilising the banking system.

You're governor. This applies to the European Bank people expecting

too much. What other tools in your If I can speak for Mario Monti as

well, I know both gentlemen quite well. We are all in agreement that

central banks cannot solve this crisis. They have to focus on first

delivering price stability. It is in nobody's interest to have

inflation. We have to do our bit, not in entirety, to keep the

financial system functioning. Thirdly, within the European

Monetary Union, they need to ensure that there is not a risk that

governments are paying that relates to the possibility that the euro

will not continue to exist, in other words they apply it -- paying

higher interest rates. Central banks can do that. But just that

will not be sufficient to produce the growth and employment of people

want. But there was another point, that all central banks come under

pressure to use monetary policy to tackle what are essentially

political problems. How far can the Government or central banks operate

independently from the political sphere? It is extremely important

that central banks... We are all given remits from national

authorities. They are grounded in legislation, sometimes constitution.

We have to be disciplined in acting consistently with those

responsibilities. But then we act independently within that context.

It is essential we act consistently, again going back to the ECB,

clearly grounded why they are doing what Mario Draghi has proposed an

is grounded in the remit. As long as we continue to do that, the

political independence of the central back should be assured.

Looking at the UK, in August, it downgraded the economic forecast

for growth to 0%. And yet Mervyn King said previously that the

government Bank of England, weight, things will get better. But it has

not happened. Do you think he is doing the right things here? Yes.

Relative to their mandate, to deliver price stability, the Bank

of England has anticipated much of the softness in the UK economy and

provided a tremendous amount of stimulus. What is different than

when, I don't know when exactly you are quoting Mervyn King, but what

happened in the intervening months is Europe has got much worse. That

is having an impact not just on the UK economy, on the Chinese economy

as well. It is even impacting the Canadian economy, despite the fact

that they are relatively a minor trading partner to the EU. That is

shading a lot of UK outcomes as well. But the one clear things most

central bank governors have is obviously that their colleagues

they have set the level of interest rates and some people have said

that perhaps they are too preoccupied with keeping price

stability and making sure inflation does not get beyond 2% -- below 2%.

That perhaps the argument of some economists, but a bit of inflation

might not be a bad thing, people might say if they have index-linked

wages that their income will go up a bit. In real terms, the cost of

borrowing of their loans will go down. Are we all to her -- obsessed

with inflation prices? I think we are appropriately obsessed with

price stability. The risk in the UK has been deflation. What the Bank

of England did over the course of the last very difficult year and

half is continue to provide additional stimulus. Interest rates

cannot go lower. They provided additional stimulus through bond

purchases and quantitative easing. In order to ensure that at this

point in time, and subsequent months, there is not deflation in

the UK. Price stability goes two ways. It is nice that was said...

He did say that. Let's take a couple of examples. Briefly. If you

are on a fixed income, I am not sure he has done you a favour. But

the second thing is that in order for this to work, in order for this

to make a difference, you have to get ahead of the bond market and

have a large surprise quickly in order to make a difference on the

fiscal side. And it would work. know they are looking for a

successor of Mervyn King when he stepped down. Your name is

circulated in the press. Are you interested? I am interested in who

they kick. But it might be you. Your wife is English and have

connections. Why not? It is an extremely important post and I am

focused on my post at the Bank of Canada. I look forward to working

with the next Governor of the bag of England. But until June next

year, I enjoy working in Canada. or never? Both. Looking at Canada,

although you don't have much exposure to fading European bans

all the debt crisis in the eurozone, you do through the US, your biggest

trading partner. So therefore the eurozone is a problem. But the

narrative has always gone that Canada's financial institutions

whether the financial crisis well. Is that still the case? You have

still got high household debt at the moment and overheating, the

markets and so on. There are problems in the banking system.

Aren't there? Our banking system is still the strongest, one of the

strongest, in the world. We have one of the highest capital rates

and lowest liquidity. The issue is in a property market and household

dead but they have both been increasing over the course of the

recession that the UK and others have been in. Because there is no

export market. That is where growth years. We have tightened the

regulations around lending into property four times. We have

increased capital ratios so that by January 1st, we will be at the end

state for capital. But you banking crisis, Standard & Poor's has

really revised its outlook on several Canadian banks from stable

to negative. Could a banking crisis the brewing heir? No. That is the

short answer. The Asher brewing their? Are the difference is that

any risky lending to the property market is backed by insurance that

is provided effectively by the Governor of Canada. If there were

issues, it very quickly goes back on to the Governor's balance sheet

and that is the balance sheet that is the strongest. Amongst the

strongest in the G20. We talked about interest rates and Mervyn

King at what about you. Would you raise interest rates? We are in a

very different place than the major crisis economies such as the UK.

Our economy is almost at full capacity. The labour market has

been growing. The extent to which we continue to grow above trend, we

may withdraw some of that monetary policy stimulus in the end.

Interest rates are 1% in Canada, very low. We have a financial

system which is firing all cylinders so we will adjust if it

is appropriate. That said, the world as a dangerous place for

stuff it is. We have seen growth downgraded to a% in China, 6% in

India, 2.5% in Brazil and those on major economies. -- 2% -- 8% in

China. Will that affect you? years. Commodity prices are down,

still higher than historic averages, but there is an adjustment and a

filly synchronised the acceleration of the global market. Two keep

things. You wear two hats. Do you think that we are moving in the

right direction to make sure that failing financial institutions are

not bail out by the taxpayer and that we will have a regulatory

system which is transparent, which will also ensure that we don't see

the kind of scandals that we are now hearing about? I am questioning

whether we are moving in the right direction. By the end of this year,

it will be absolutely clear to you, to institutions and there G20

leaders what is left to be done and that everybody is held to account