Before the global financial crisis, the City of London was widely thought the leader of global finance. Strategically-located between key time zones in Asia and North America that gave it an advantageous position in continuous trading around the globe, and endowed with strong legal traditions and institutions, London long held a role in global finance disproportionate to the United Kingdom's economic importance. Its regulatory framework, meanwhile, was held up as the model for others.
In the wake of the crisis, however, that Panglossian view has been questioned. Some contend that part of London's former allure was attributable to the "lax and tax" environment that prevailed in the halcyon days, BC ("before the crisis"). They argue that international finance was drawn to London, like a moth to flame, by the lax regulatory environment and generous tax regime for foreign investment bankers raking in millions of pounds in City bonuses.
Lacking the technical expertise needed to assess the claim, I am agnostic on the question. But, if the contention has only a modicum of validity, it would help explain the extraordinary announcement that Bank of Canada Governor Mark Carney is to replace Mervyn King as Governor of the Bank of England.
It's all about trust.
Banking is, fundamentally, based on trust. So, while there are several exceptionally well qualified candidates in the UK, too many were tainted by the fallout of the crisis through no fault of their own; others lacked the necessary financial market expertise. At the same time, Carney is a remarkable man -- perceptive, driven and decisive. Moreover, as chairman of the Financial Stability Board, he is leading the global effort to reform international regulatory frameworks. As the Chancellor of the Exchequer noted in making the announcement, he is, quite simply, the best candidate bar none.
The fact is that re-establishing trust in the UK financial system requires root and branch change. The Governor of the Bank of England is the most visible player in that game. In this respect, it is necessary that reforms not only be done; they must be seen to be done.
Over the past five years international attention has focused on the performance of the Canadian financial system and its remarkable stability in the financial crisis. Governor Carney was at the centre of efforts to prevent the dysfunction that was so evident elsewhere, first at the Canadian Treasury; then at the Bank of Canada. His appointment is an acknowledgement of these efforts. But his elevation is also a recognition of the contribution of others at all levels who worked tirelessly throughout the crisis.
For Canadians, the appointment of Mark Carney to lead the "Old Lady of Threadneedle Street" is sweet vindication of our prudent regulatory framework and careful stewardship of the economy.
What a difference a crisis makes!