’Virtue cannot be regulated’

Written by: Father Raymond J. Souza – (National Post)

Mark Carney is in the final month of his “too-long goodbye” — to borrow the infelicitous phrasing of my colleague Terrence Corcoran, who remains a prickly critic of Carney, and is eager to bid farewell.

Over at the CBC, Neil Macdonald has done a documentary this week on the “monarchs of money,” accusing the world’s central bankers of pushing pensioners into penury, and bringing chaos to European countries through crushing austerity. In his interview with Carney, Macdonald clearly got under the preternaturally cool governor’s skin, who insisted that whatever the risks of the American and European central banks massively expanding their balance sheets — “printing money,” in the vernacular — the alternative would have been worse. Such are the lessons of the financial crisis, a reminder that the innocent suffer for the sins of the guilty.

The governor, for his part, is putting his farewell to good effect, with a series of major speeches exploring those lessons. Yesterday, in Edmonton he addressed the future of monetary policy. He has another speech planned for later this month in Montreal.

Perhaps his most important address though was in February at the Ivey business school in London, Ont. Entitled “Rebuilding Trust in Global Banking,” it summarized his prescription for financial-sector reform. It was striking that his prescription was less regulatory than exhortatory. Restoring trust to the financial sector is largely a matter, Carney argued, of bankers and their colleagues becoming more trustworthy. It is a task of moral (re)formation.

“Bonds of trust between banks and their depositors, clients, investors and regulators have been shaken by the mismanagement of banks and, on occasion, the malfeasance of their employees,” Carney said in February. “Over the past year, the questions of competence have been supplanted by questions of conduct. Several major foreign banks and their employees have been charged with criminal activity, including the manipulation of financial benchmarks, such as LIBOR, money laundering, unlawful foreclosure and the unauthorized use of client funds. These abuses have raised fundamental doubts about the core values of financial institutions.”

“What is required to rebuild [that trust?]” Carney continued. “The G-20’s comprehensive financial reforms will go a long way but will not be sufficient. Virtue cannot be regulated. Even the strongest supervision cannot guarantee good conduct. Essential will be the re-discovery of core values, and ultimately this is a question of individual responsibility. More than mastering options pricing, company valuation or accounting, living the right values will be the most important challenge.”

Effective reform of the financial sector, and the broader culture of capitalism, cannot be accomplished without calling upon the deeper resources of ethics, philosophy, morality and, yes, faith

Some years ago, I wrote in this space that the governor had become something of a preacher, calling for prudence and modesty in taking on debt, a sense of public duty in the financial sector, and for remorse and contrition from those who malfeasance brought such pain to so many. Tomorrow in Toronto, the governor and this preacher will be together to discuss just these matters, along with Roger Martin, dean of the Rotman school of management. My new magazine of faith in our common life,Convivium, is hosting a panel discussion on Carney’s February speech, wherein Professor Martin and I will respond to the issues raised by his call for both regulatory and moral reform in the banking sector.

Of course, we are honored that Carney has elected to address our forum in his last days as governor in Canada. Besides our proprietary pride though, it indicates that effective reform of the financial sector, and the broader culture of capitalism, cannot be accomplished without calling upon the deeper resources of ethics, philosophy, morality and, yes, faith.

“Integrity cannot be legislated, and it certainly cannot be bought. It must come from within,” Carney said.

“From within” does not necessarily mean religion. There is a long tradition of ethical reflection that is not religious. I expect Martin will indicate how that tradition applies in business education today. For many though, that “within” — the interior sanctuary of conscience — is inextricably related to the sanctuaries of the spirit in our tradition and culture, all of which is related to the question of faith.

“When bankers become detached from end-users, their only reward is money, which is generally insufficient to guide socially useful behavior,” Carney said. “Few regulators and virtually no bankers saw these limitations. Beliefs in efficient, self-equilibrating markets fed a reliance on market incentives that entered the realm of faith.”

Faith, indeed. The question for the future of finance is what will replace the faith that failed — that of self-equilibrating self-interest? Perhaps faith in God might have something to offer.

National Post