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(CEP News) Ottawa - In the face of a deepening global recession, countries around the world need to co-operate in developing reforms that speed a recovery and guard against a repeat of the turmoil that has roiled global economic markets for the past year-and-a-half, Bank of Canada Governor Mark Carney said Wednesday.
"There is a pressing need for international institutions that effectively monitor systemic risk and co-ordinate macro prudential and financial policy reform," Carney said in a speech prepared for delivery to the Canada-United Kingdom Chamber of Commerce in London, England. Canada has survived the global crisis better than many other countries, Carney said, thanks to a conservative banking system and actions by the federal government and the Bank of Canada. But he said, "while it is undeniable that good financial regulation begins at home, it is equally clear that it cannot end there." The current crisis was able to get as bad as it did, he said, because there was "no effective international surveillance that identified either the nature of the scale of the financial crisis, because no international organization had yet integrated effectively macroeconomic and macrofinancial analysis." As part of the new approach, Carney said, there has to be improved transparency in financial markets. "Many highly structured products at the centre of the turmoil were far from transparent and the disclosure by their originators was often wanting." The second priority, he said, is to address misaligned incentives within the financial industry. Within several global financial institutions, he said, there were "inappropriate incentives created by the funding of trading desks at risk-free rates and poorly designed compensation structures." Instead of simply regulating compensation, however, he suggested the system needs an overhaul. "Regulators should consider carefully compensation incentives within a broader assessment of the robustness of risk management and internal control systems," Carney said. By Geoff Matthews,
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