Banking and Finance
Country ... UK

If banks don’t change they will be 'socially useless', says Bank of England governor Mark Carney

Burgess COMMENTARY
Thank, Jean-Stéphane et al, for alerting me to this remark by the new Bank of England Governor. I think many of us have been of the view that the big banks have been socially useless for a long time ... and in my case I would argue economically useless as well.

There is no question that money and banking are useful in a fast moving healthy economy, but they are the lubricant of the economy, not the engine and not the fuel. When a bank makes a lot of profit this profit is coming from somewhere in the economy where real wealth production (that is valuadd) is going on. In itself a bank does nothing to add wealth to the system.

I remember writing an essay at college about the dangers of concentration of economic power. Still a huge issue. I also remember writing about the dynamic of productivity in the economy, something that rarely gets talked about, but in my view something that makes old economics almost always wrong.

It looks as if Mr. Carney might be a game-changer. I hope so ... but the institutional road-blocks are huge. Better metrics would help.

Peter Burgess TrueValueMetrics
Peter Burgess

If banks don’t change they will be 'socially useless', says Bank of England governor Mark Carney

Warning to bank: Mark Carney says banking culture has to change (Picture: PA)

Mark Carney today said that some banks were in danger of becoming “socially useless”, as he called for a change in culture in the City.

The new Bank of England governor said financiers should focus on creating jobs rather than just making profits.

“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.

“The cultural issue is fundamentally important,” he told BBC Radio 4. “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.”

Mr Carney said banks could “absolutely play a socially useful and an economically useful function”, but they needed to focus on the “real economy” and their impact on jobs.

His call comes a day after the Bank linked future interest rates to the level of unemployment for the first time.

This effectively means that the base rate will remain at 0.5 per cent until 2016, when unemployment is predicted to fall below the 7 per cent level that Mr Carney stipulated in his future guidance statement.

Today, David Cameron hailed the announcement as a sign of confidence in the Coalition’s economic policy. “He’s effectively saying ‘the Government’s doing the right thing... and therefore we can have an aggressive monetary policy’,” the Prime Minister told BBC Breakfast.

Meanwhile, Mr Carney admitted that the Bank of England had a “striking” lack of top female economists.

He pledged to create a pool of candidates for its rate-setting committee who will eventually become good enough to produce the first female governor in the Bank’s 300-year history.

Mr Carney said that the situation was “striking on a personal level, although it is the responsibility of the Government to select the candidates”. He said the Bank must “grow top female economists all the way through the ranks”.

He said the ultimate aim was to “add to the diversity of macro-economic thinking and add to qualified candidates for the monetary policy committee, including qualified candidates for a future governor”.

Only four of 33 senior economists to serve as rate-setters since the Bank was granted independence in 1997 have been women.

The committee has been male-dominated since housing specialist Kate Barker’s term came to an end more than three years ago — in contrast to the United States, where the Federal Reserve’s vice-chairwoman Janet Yellen is a leading candidate to take over the top job.

Since taking over last month, Mr Carney has made a senior female appointment, appointing Charlotte Hogg as its first chief operating officer.

However, human resources director Catherine Brown has since decided to take up a job in the private sector.

'Banks risk becoming socially useless unless they change their culture and focus on the real economy'. Mark Carney, Governor, Bank of England. An extraordinary statement!