OTTAWA – Bank of Canada governor Mark Carney brought a financial savvy that helped put the country’s central bank in the international spotlight during the 2008-09 financial crisis, observers say.
While he navigated those challenges with skill and confidence, the clear direction during the financial meltdown that he laid out stood in contrast to the sometimes cryptic messages delivered by central banks in the past.
Still, historians judging Carney with the benefit of hindsight might not look so favourably on his decision to keep interest low for so long, experts add.
University of Toronto business professor Walid Hejazi said Carney, a former Goldman Sachs investment banker, brought with him a level of financial sophistication and understanding that helped give confidence to markets and the public.
“That role in addition to having effective monetary policy requires one to be very confident,” he said.
Carney, who announced Monday that he would step down from his job as Canada’s top central banker to take the top job at the Bank of England, took over at the beginning of 2008 amid the first signs of the financial crisis.
Economist David Madani of Capital Economics suggested that Carney’s experience as an investment banker with Goldman Sachs served him well during the crisis and helped give him the needed credibility with financial markets.
“The confidence that that kind of experience instilled in the market was beneficial,” Madani said.
Born in Fort Smith, Northwest Territories, Carney graduated with an undergraduate degree in economics from Harvard University and both a master’s and doctorate in economics from Oxford University.
Carney spent 13 years with Goldman Sachs in London, Tokyo, New York and Toronto before joining the Bank of Canada as a deputy governor in 2003 and serving a stint as senior associate deputy minister of finance before becoming governor.
Scotiabank economist Derek Holt said not only did Carney help establish Canada’s reputation for a sound financial system, but he also revamped the Bank of Canada’s culture.
The central bank’s governing council has almost been entirely replaced since Carney’s takeover in February 2008 with only deputy governor John Murray, who joined in January 2008, remaining.
“He retooled not only the governing council, but throughout the rank and file,” Holt said.
“It wasn’t just at the top of the house, it was throughout the whole organization where I think he was fairly effective at restaffing and changing the culture of the organization in some important respects.”
During the crisis, Carney clearly telegraphed the central bank’s plan for interest rates and how it would respond if things worsened.
When the central bank cut its overnight rate target to 0.25 per cent in April 2009, Carney was explicit in his guidance that the bank would hold the rate at the extraordinarily low level until the second quarter of 2010.
However in recent months, Holt suggested that the bank has been less clear in its messages to the financial markets.
“He has been somewhat inconsistent in terms of policy signals to the market and that to me will be an interesting thing to watch in his new role at the Bank of England,” Holt said.
Madani said he believes when historians look back at Carney’s tenure with the benefit of hindsight, they will be critical of the central bank’s decision to leave rates so low for so long.
The Bank of Canada’s overnight rate target has been steady at one per cent for more than two years, and despite warnings by Carney that higher rates are coming, have remained on hold.
“In hindsight if you ask me what should have the Bank of Canada done in terms of setting of interest rates, I think they should have kept raising interest rates because now we have trouble with housing,” Madani said.
“I think five to 10 years from now when you look back at the Bank of Canada and Mark Carney, I think we’ll realize perhaps we kept interest rates too low for too long and that contributed to the housing problem.”