BRITISH banks risk becoming socially useless unless they focus on the “real” economy and help businesses invest and create jobs, new Bank of England Governor Mark Carney has said.
Mr Carney, who has just taken over the flagship role after arriving from Canada, said banking culture had 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 yesterday: “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 – 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.”
Asked whether people working for banks should sell a product to a customer to make a profit, even if they knew the product was bad for the customer, Mr Carney said: “Absolutely you shouldn’t sell it.”
He added: “Let me say as Governor of the Bank of England, and this is something that is shared by my colleagues, it’s that attitude in institutions that undercuts their effectiveness, is bad for the system, and to the extent that with our powers, [when] 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 of 0.5 per cent until more than 750,000 jobs have been created – a process which could take at least three years.
He said policymakers should not pull back from stimulating the economy too early or they will risk choking off the recovery and end up with a similar situation to Japan, where interest rates have remained at rock-bottom levels for years.
He added: “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.
“We don’t want to make those mistakes here in the UK.”
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.
He said: “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.”