Canadian central bank rebukes banks

By ROB GILLIES
Associated Press Writer

TORONTO (AP) - The head of Canada's central bank said Monday the global financial industry is in danger of becoming arrogant by resisting regulatory change and handing out bonuses that wouldn't be there if governments hadn't intervened during the financial crisis.

Bank of Canada Governor Mark Carney warned bankers not to underestimate the determination of G20 countries to enforce new rules on executive pay and bank capitalization.

Carney said large financial institutions benefited disproportionately from government intervention. He said the response has profoundly shifted risk from the private to the public sector.

Carney, a former Goldman Sachs executive, said all G-20 countries agree that bonuses should be tied to long-term performance. He said banks would be well advised to make sure they have the sufficient capital rather than pay themselves handsome bonuses.

"Relief is in danger of giving way to hubris," Carney said in a speech hosted by Quebec's securities regulator in Montreal.

Carney said the industry should not have blind faith in the security blanket of excess capital. He said financial institutions need to demonstrate an awareness of their broader responsibilities.

He said this approach requires a sensitivity from the industry, which has been absent in recent months.

"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 said. "Stronger institutions and a system that can withstand failure are necessary conditions. But full realization of this objective also requires a change in attitude."

Canada intends to use its presidency of the G-7 next year to advance some of the most important priorities, Carney said. Canada will host G-8 and G-20 meetings next year.

"It would be a mistake to underestimate the determination of G-20 leaders to reshape the financial services industry," he said.

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