Mark Carney: Interesting times
A look at the first three years of the Bank of Canada governor's mandate
Sept. 15, 2008: Lehman Brothers filed for bankruptcy, the largest such filing in the history of the United States.
The global financial system teetered on the brink of catastrophe.
For years, the financial world had been changing. Markets for complex investment products like derivatives, credit default swaps and collateralized debt obligations were largely unregulated and poorly understood by central bankers.
But not all central bankers.
Bank of Canada governor Mark Carney, who celebrates his third anniversary in that post on Tuesday, spent 13 years with Wall Street investment giant Goldman Sachs before entering public service. He has a PhD and master's degree in economics from Oxford University.
"He knows how markets react," says John Kirton of the Munk Centre for International Studies at the University of Toronto. "That's what caught everybody by surprise. Complex derivatives ... all of the fancy stuff.
"If you work at Goldman Sachs, you know how that stuff works."
Carney helped organize the global response to the financial crisis as part of the G8 and G20.
"Carney was part of coming to that consensus saying, 'Look guys, this is really serious. We can't wait even for the next G7 finance ministers' meeting. We've got to strike hard, fast, big and in a broadly co-ordinated way,'" says Kirton.
'He could literally get any job he wanted'
Former TD Bank chief economist Don Drummond, himself a former contender for the Bank of Canada's governorship, says Carney is "a giant on the international front.
"He and his colleagues, they have enormous respect in international circles," he says. "He could literally get any job he wanted in financial circles anywhere in the world after that seven-year term."
Carney was appointed governor of the Bank of Canada on Feb. 1, 2008. At home, he's been lauded for running an expansive monetary policy to soften the blow of the global economic downturn.
He's cut interest rates to their lowest level in Canadian history. When capital markets got tight during the financial crisis, he found a way to get money to the banks through the Canadian Mortgage and Housing Corporation so they could lend to businesses.
Canada's version of so-called quantitative easing cost nothing.
It even made Ottawa money.
Financial market experience
"We could quibble about details here and there, but ... they'd be really small details," says Chris Ragan, an associate professor of economics at McGill University.
"What he was really bringing to the table, unlike most central bank governors at the time, was financial market experience. And I have to believe that has been useful for him over the past three years.
"I'm going to give him an A+."
But for all the effusive praise from economists like Ragan, Carney is not without his critics. As Canadians struggle with record levels of household debt, some say the Bank of Canada's consistently low interest rates have encouraged people to borrow more than they ought to.
As interest rates begin to rise, as they're expected to this summer, as many as 10 per cent of Canadian households could have trouble meeting their debt-servicing costs.
Others, such as International Trade Union Federation chief economist Erin Weir, say Carney initially moved too slowly to cut interest rates.
"The Bank of Canada didn't get its target rate down to zero until April 2009, which is about six months after the financial crisis started," Weir says. "The Bank lagged behind the American Federal Reserve, for example."
And, Weir says, more could have been done to slow the loonie's rise.
Carney is often praised for his mastery of "central bank-speak," which means he says as much as possible without actually giving anything away. That includes matters such as where he'd like the Canadian dollar to be, or what he expects interest rates to look like at year's end.
But he's also credited with an innovation, the "conditional interest rate guarantee." He promised Canadians he would leave interest rates low for an extended period, beginning in 2009.
"Nobody had ever done that before," Drummond says. "There was a lot of squeamishness on the outside. 'Why would you do that? You're tying your hands,'" he says. "And, of course, it did have a condition ... if inflation started to become a problem, the commitment is thrown out."
But for now, inflation is not a problem, and Carney's commitment to low interest rates will likely continue for the rest of the year, though some tightening is expected this summer.
A trustworthy institution
Carney also benefits from running an organization that enjoys a unique level of trust among the Canadian population.
"The Bank of Canada ... is one of the most trustworthy organizations," says Michael Marzolini, president of Toronto-based polling firm Pollara. "It's the equivalent of David Suzuki talking about the environment."
Pollara's research has found that 68 per cent of respondents trust the Bank of Canada on the economy, Marzolini says. He's found that the "believability" rate for politicians is 15 per cent.
That's because Canadians have confidence in the currency issued by the Bank of Canada, he says, particularly since the loonie has pulled even with the U.S. dollar and appears likely to remain there.
With the recovery slowly gaining pace after a raucous three years, Mark Carney must be hoping for a reversal of the old Chinese saying: that he, and Canada, might live in less interesting times.