Banks must help businesses create jobs or become 'socially useless' says Bank chief Mark Carney
Thursday 08 August 2013
Banks risk becoming socially useless unless they focus on the real economy and help businesses invest and create jobs, Bank of England governor Mark Carney has said.
Mr Carney said banking culture has to change and financiers should not be disconnected from society.
He stressed that the attitude within the sector that leads to mis-selling of banking products to customers to turn a profit undermines the effectiveness of banks.
Mr Carney said on BBC Radio 4's Today programme: "The cultural issue is fundamentally important. There has to be a change in the culture of these institutions. It's something I've spoken about in the past when I was in Canada, and it applies absolutely here as well.
"I think finance can absolutely play a socially useful and an economically useful function but what it needs in order to do so, the focus has to be, of the financier, the people working in the banking system, has to be on the real economy, what it does for businesses making investment, what ultimately it means for jobs in the economy.
"And it's the loss of that focus, it's finance that becomes disconnected from the economy, from society, finance that only talks to itself and deals with each other, that becomes socially useless.
"One of my other responsibilities is chairing the Financial Stability Board and a lot of what we're doing there internationally is to strip out that type of behaviour."
Asked whether people working for banks should sell a product to a customer to make a profit, even if they know the product was bad for the customer, Mr Carney said: "Absolutely you shouldn't sell it.
"Let me be absolutely clear as well, the type of behaviour you're talking about is conduct behaviour. Actually Martin Wheatley who's in charge of the Financial Conduct Authority is directly responsible for that.
"But let me say as governor of the Bank of England, and this is something that is shared by my colleagues, it's that attitude which indicates even if we're not directly responsible for that behaviour, it's that attitude in institutions that undercuts their effectiveness, is bad for the system, and to the extent that with our powers we can use them, we work to snuff them out."
The governor also said he had "tremendous sympathy" for savers hit by the Bank's announcement that interest rates will not rise from their record low until more than 750,000 new jobs have been created.
Households and businesses have been told not to expect interest rate rises for at least the next three years as Mr Carney said rates will remain at 0.5% until the unemployment rate drops to 7%, depending on stable inflation.
He said policymakers should not pull back from stimulating the economy too early or they will risk choking off the economic recovery and ending up with a similar situation to Japan, where interest rates have remained at rock-bottom levels for years.
Mr Carney said the best way to get back to normal interest rates is to have a strong economy.
He told the programme: "We have tremendous sympathy for savers. They have done the right thing, they have set aside some money, they are earning a lower return than they would have expected when they put money aside but the best way to get interest rates back to a normal level is to have a strong economy.
"Let me tell you, I first lived in this country in the 1980s. After that I lived in Japan and it was the start of life after the financial crisis and in Japan they made two mistakes.
"The first was they didn't fix the banks quickly enough - in the UK we are fixing the banks. Secondly, as their recoveries began, they pulled back on stimulus too early and those recoveries didn't gather life and as a consequence, almost a quarter-century later, interest rates are still at rock-bottom levels in Japan.
"We don't want to make those mistakes here in the UK. This is about ensuring that in the reasonable future, and I recognise that it's difficult for savers, but in the reasonable future we're delivering that strong economy that will deliver higher interest rates and jobs."
Prime Minister David Cameron insisted he was "confident" the economy would create jobs, and hailed Mr Carney's forward guidance on interest rates as a vote of confidence in Government policy.
"We have seen the creation of 1.3 million new private sector jobs over the last three years and they (extra jobs) are going to come from the private sector," he told BBC Breakfast.
"What we inherited as a Government was a public sector that was too big and a private sector that was too small.
"So we need to encourage small business to - as we are - back apprenticeship schemes, things like that.
"I am confident that jobs will be there.
"But I think what is good about what Mark Carney is saying is that he is effectively saying look, the Government is doing the right thing by taking difficult decisions to get the deficit down and therefore we can have an aggressive monetary policy until unemployment falls even further."
Mr Cameron added: "I am pleased with the fact that unemployment has fallen month after month over the recent year and I am pleased with the fact that we have got these private sector jobs.
"But unemployment is still too high. And there is still too many young people who are not getting the opportunities they need."
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