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Canada's Central Bank Governor Mark Carney delivers remarks at the Institute of International Finance (IIF) annual meeting in Washington September 25, 2011. The current global economic uncertainty is no reason to delay financial regulatory reform, Carney said on Sunday, rejecting what he called the "fatalism" of critics in the banking industry. REUTERS/Yuri GripasYURI GRIPAS/Reuters

Mark Carney, the Governor of the Bank of Canada, was right to make a forthright defence of financial regulation reform in a speech in Washington on Sunday – soon after being the object of a nationalist polemic from the CEO of JPMorgan Chase, Jamie Dimon, in a smaller, closed-door group on Friday.

Mr. Dimon has accused the drafters of the G20's new capital rules of being anti-American, and thinks that the United States should be ready and willing to withdraw from the whole process. Above all, he opposes a rule that is designed to deal with the "too-big-to-fail" problem. The proposed regulations require the biggest banks to have a proportionately higher capital buffer – to protect the taxpayers from the risk of bailouts of huge financial institutions, while not-so-large banks might be allowed to go out of business.

Though he did not deal with the too-big-to-fail provision, Mr. Carney gave a spirited, provocative speech on Sunday at the annual meeting of the Institute of International Finance, an association of banks and other financial institutions, that is, of those who may not be particularly happy about being regulated more rigorously on an international scale. He was far from ingratiating, starting out by saying he had "waded" through a year's worth of IIF documents and had found their messages "consistent, if not always concise," and ending up by deploring the "world-weary fatalism" of critics of reform.

On one whole area of criticism, though, he acknowledged that stronger regulation of banks can lead to a flight of business toward unregulated, or much less regulated, shadow banks. Accordingly, Mr. Carney provided a useful outline of a range of ways to deal with what he prefers to call market-based financing.

But on the macroeconomic front, he spoke quite sharply about the IIF's own estimates of the effects of the new international regulations on growth, complaining that it hardly recognized the costs of the financial crisis itself – or the good consequences of solid, stolid Canadian and Australian bank regulation.

Mr. Carney's admirably challenging words may well have irritated some members of the IIF, but he does not deserve to be demonized by Mr. Dimon.

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