Mark Carney: evaluation

Transcript context

…Twenty-five percent of global GDP seems very, very high to me. As central bankers, we look at market prices. Most insurance companies are not insolvent. That’s a forward-looking market price. Coastal property, the prices of some of it are down, but not radically so. Obama bought a house at Martha’s Vineyard. No one said that was a huge mistake. If the actual costs are 5, 6 percent of GDP, maybe that’s a year and a half’s global growth, which is still highly significant. But a lot of it happens slowly. It’s predicted. It’s signaled by market prices in advance. If the central bank just went about doing its old ordinary business and did a good job, what exactly is going to go wrong that makes it necessary to extend their mandate to climate change? A couple of things. Three things, and you added a third at the end. First is, having been a regulator of the insurance industry, I can tell you, and particularly the property and casualty and the reinsurance industry, they think this is a big risk. In fact, if you were the regulator of Lloyd’s of London, one of the biggest reinsurers in the world, it’s number one, number two in terms of their risk. The reason why Lloyd’s does well — it has some years better than others — and these big P&C companies is because they write relatively short-term contracts, and they reprice. They reprice coverage and they reprice risk. They’re following the impact of climate change on the physical risk, and they’re able to react to it because they’re not writing a whole ton of 30-year catastrophe risk in their books. They write some, but they don’t write — that’s not at the core. That’s the first point. Second point is that — and it goes to your last point, which is that some central banks have this responsibility because of whom they oversee. Some central banks, Bank of Canada, for example, it’s a monetary institute, for lack of a better word. Its job is price stability largely. It does a bit of analysis on the financial stability side, a bit on payments, but it’s largely price stability. If you oversee major financial institutions and there is large prospective risk, clearly in insurance, potentially in banking because of the transition risk I was talking about a moment ago — and just give an example, this week, the week we’re talking, the IAA has come out with their forecasts for, or their scenarios, I should say, for what’s necessary in order to achieve one and a half degrees. The orders of magnitude of stranded assets of known reserves in energy are three-quarters of coal, proven reserves; half of gas; and more than a third of oil. You have to think about, as a bank or as an investor, “Well, am I exposed to the bit that gets produced or the bit that won’t get produced if we’re in this scenario, or do I think we won’t end up in this scenario and it’ll all get produced and the real risk will be on the physical side?” Just to wrap up, some central banks have that direct responsibility. Bank of England absolutely, clearly did as the insurance regulator, but also the financial stability, the macroprudential regulator. Others don’t because they only do monetary policy, and many are somewhere in between. I would say — I said that was going to be the last point; I’ll make one other — that we have 90 central banks from around the world that cover 85 percent of global GDP, which is part of the central bank group, self-selected into that group that is looking at these risks and how to make sure the system is resilient, because to loop back to something else we were talking about earlier, we need to plan for failure. selected into that group that is looking at these risks and how to make sure the system is resilient, because to loop back to something else we were talking about earlier, we need to plan for failure. We need to make sure the system is resilient for these type of risks so that the financial system is not part of the problem and it can help support things going forward.…

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