Mark Carney’s surprise appointment as head of the Bank of England has demonstrated the breadth of his fan club. Commentators around the world are lauding the Bank of Canada boss’s impressive résumé and list of achievements. The phrase “best central banker in the world” keeps coming up.
Certainly, Mr. Carney deserves applause for keeping Canada on an even keel over the past four years, as much of the world’s financial system crumbled around it. And there’s no disputing that Mr. Carney is an immensely talented, intelligent, charismatic and committed central banker, who has seized leadership on a global stage at a time when the global financial community sorely needed leaders.
But he didn’t save Canada from an economic and financial collapse. The systems that safeguarded Canada’s financial system and guided policy through the crisis were in place before he took the job.
Canada’s remarkable financial stability has been built on three pillars: Inflation-targeted monetary policy, fiscal discipline and relatively restrictive banking regulations.
Tying monetary policy to specific inflation-rate targets – a move that has instilled discipline and transparency to central-bank decisions and contributed to Canada’s stability in good times and bad – has been legally entrenched as the guiding principle of Bank of Canada monetary policy since 1991, when Mr. Carney was still a student at Oxford University.
The country’s fiscal discipline dates back to the late 1990s, when Liberal Finance Minister Paul Martin wrangled the federal budget into balance – where it remained for a decade, leaving Canada enviably well-positioned to withstand the crisis when it hit in 2008.
Canada’s banking restrictions – which, effectively, blocked mergers among the country’s major banks, kept their ownership out of concentrated foreign hands and limited their foreign liability exposure – can, again, be traced back to the 1990s and Mr. Martin.
Mr. Carney has been an exemplary caretaker of these pillars. But he didn’t build any of them.
One thing for which Mr. Carney does deserve considerable credit – indeed, it gave him instant international credibility shortly after he became Bank of Canada Governor in 2008 – was recognizing the gravity of the collapsing U.S. housing market, and acting swiftly to slash interest rates, well before many of the world’s more powerful central banks had grasped the rising risks in the system. The move almost certainly helped bullet-proof Canada from some of the worst economic fallout of the financial crisis.
Mr. Carney also deserves credit for brokering a remedy for Canada’s asset-backed commercial paper quagmire, which without his guidance could have easily blown up into a home-grown financial crisis during the 2008 credit meltdown. He should receive applause for helping not just Canada but the global central-banking community co-ordinate a system of interest-rate cuts and liquidity injections to keep banks afloat and business flowing in the darkest days of the crisis. His work as head of the Financial Stability Board, the international body entrusted to devise global regulatory and financial-system standards, has the potential to be groundbreaking, leading the world to a financial system far better protected from widespread calamity than the one that existed prior to 2008.
Mr. Carney also merits accolades for raising Canada’s profile in the international financial community, promoting the country’s proven success formula with the rest of the world and earning Canada a voice in the discussion on the direction of global financial policies and regulations.
It’s a fine body of work. But let’s be careful not to give too much credit to the guy who piloted the Canadian ship, and not enough to the people who actually built it.