Mark Carney of BoE has a speech on the topic.
He starts with three lies related to Harvard Univ:
In Harvard Yard sits a statue of John Harvard, seated on a bronze throne, commemorating 1638, the year of the university’s founding. Tour-guides relish in pointing out that, in fact:
- No-one knows what John Harvard looked like, so it is unlikely to be a great resemblance of him;
- The college wasn’t founded in 1638, but two years earlier;
- And it wasn’t founded by John Harvard, but by the Court of the Massachusetts Bay Colony, which first voted to set up the university.
The “Statue of the Three Lies” is part of Harvard legend. The Three Lies in question are harmless fun. But they should remind us how deeper untruths can persist, embodied in monuments or sustained by conventional wisdom and mores. We gather this evening almost seven years to the day that the failure of Lehman Brothers shattered conventional wisdom and laid bare three lies about finance. Unlike the statue’s three lies, those falsehoods have had lasting consequences.
What are the three truths of finance:
- This Time Is Different
- Markets always clear
- Markets are moral
We know the first two limitations. Though, central banks are equally responsible for both the truths.
The morality bit is more of a new idea, something which BoE has been talking of lately:
Lie three is that “markets are moral” – that financial capital can take for granted the social capital necessary for markets to fulfil their promise.
Consider the example of fixed income, currencies and commodities markets, which historically have relied heavily on informal codes and understandings. That informality was well suited to an earlier age. But as markets innovated and grew, it proved wanting.
Markets need to retain the consent of society – a social licence – to be allowed to operate, innovate and grow. Repeated episodes of misconduct (such as the Libor and FX scandals) have called that social licence into question.
To restore it, we need to rebuild fair and effective markets. Not markets that collapse when there is a shock from abroad.
Not markets where transactions occur in chat rooms. Not markets where no one appears accountable for anything.
Real markets are professional and open, not informal and clubby. Their participants compete on merit rather than collude online.
Real markets are resilient, fair and effective. They maintain their social licence. But real markets don’t just happen; they depend on the quality of market infrastructure.
Robust market infrastructure is a public good in constant danger of under-provision because the best markets innovate continually. This inherent risk can only be managed if all market actors, public and private, recognise their responsibilities for the system as a whole.
So is the case for central banking as well. They should not be informal and clubby which most of them are.
He talks about several measures which BoE has been taking to restore its image and get morality back in markets. He speaks about this new open forum:
This November, the Bank of England will hold an Open Forum at the Guildhall. The programme, published tomorrow, has been developed not just by policymakers and market participants, but also representatives of well-known companies, trade unions, academia, the media and civil society.
An online portal for registration will open tomorrow morning, with attendance determined shortly thereafter by a ballot.11 Debate on social media is already underway,12 and there will be live webcasts available on the day. The Open Forum is open to everyone, because the UK’s markets matter for everyone.
Our goal is to discuss the prospects for market functioning, where regulations might overlap or conflict, and whether enough has been done to build the real markets the UK deserves. Markets that merit social licence and reinforce social capital.
The forum was opened yesterday. Let’s see what is coming out of it.
Though, BoE is the second oldest central bank (came in 1694 with Riksbank of Sweden being the first in 1668), it clearly is the leaded of the central bank pack. The pressure is much more on the UK central bank to restore the past glories no matter how distorted they have made things..