G20 countries need to expand 'perimeter' of banking rules: Carney

Bank of Canada Governor Mark Carney lectures at the University of Alberta School of Business in Edmonton on Monday. (Jimmy Jeong/Canadian Press)

The world's major industrialized countries must expand what they regulate in the financial sector and how they regulate it to avoid another credit collapse, Canada's chief banker said Monday.

Bank of Canada governor Mark Carney told a University of Alberta audience that G20 countries should set rules for anything in the credit markets that "can pose a systemic risk to financial stability."

"This will include pools of capital of material size, leverage and maturity mismatches," he said.

In recent months, central bankers have tried different financial manoeuvres — everything from cutting interest rates to buying distressed debt — in a bid to loosen up atrophied credit markets and stop the global economic slide.

The common consensus is that these measures, even if they prove effective, are remarkably slow in working their way through various economies.

Carney said Canada has proven to be one of the better countries at keeping their financial institutions — and by implication the Canadian economy — out of the asset-backed commercial paper muck.

"Our system is better ... [but] many of the current constraints in our system reflect the impact on Canada of failures in the international financial system and of international institutions," he said.

The G20 leaders, who are set to meet in London this month, will be faced with a world in which many countries are interlinked financially, allowing banks and other institutions to avoid those jurisdictions that impose more difficult rules, experts said.

As well, "shadow banks," companies that lend money in ways similar to traditional financial institutions, came to the forefront in recent years, Carney said. That resulted in buckets of lending going into riskier areas, such as zero per cent mortgage lending in the United States.

More regulation of more financial institutions would help, Carney said.