Nov. 20 (Bloomberg) -- Bank of Canada Governor Mark Carney, the former investment banker who helped the country avert the worst of the financial crisis, says Canada’s experience provides lessons for the world.

“We are playing the role we are advocating,” Carney, 44, said in an interview yesterday at Bloomberg News headquarters in New York before a speech to the Foreign Policy Association. “We put our money where our mouth is,” he said. “So do we have something to say about this, yeah, we have something to say.”

Canada didn’t need to bail out any of its banks, even as the U.S. spent more than $400 billion to support institutions, including American International Group Inc. and Citigroup Inc.

The largest trading partner of the U.S. may lead the Group of Seven with 2.1 percent economic growth next year, according to the International Monetary Fund, adding to Carney’s influence among central bankers. Carney, a former Goldman Sachs Group Inc. investment banker, said the global recovery could be hobbled if China and other major countries keep restricting movements of their currencies.

“Canada is in a better position to be assertive on the subject because our monetary and fiscal policies are in shape,” Finance Minister Jim Flaherty said in an interview yesterday.

Canada next year will hold the G-7 presidency and hosts a summit of G-20 leaders in June. Carney, a native of Fort Smith, Northwest Territories, said Canada will use that position to seek rules that protect banks from the economic cycle and allow the financial system to withstand bank failures.

Winning Praise

While U.S. officials like Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke face criticism both at home and abroad, Carney has won praise for his handling of the crisis. Geithner yesterday defended his record and dismissed a call for his resignation from Kevin Brady, the senior House Republican on the Joint Economic Committee.

Carney’s background at Goldman Sachs gives him “not only practical, but real experience with having dealt in the markets from a different perspective,” said Richard Waugh, chief executive officer of Toronto-based Bank of Nova Scotia, the country’s third-biggest bank.

Carney, the youngest central banker in the G-7, warned in his speech of the considerable “negative consequences” of not acting to deal with trade imbalances and inflexible currencies, adding that may create a new round of trade protectionism.

Shape the Future

“The adjustment burden is being shifted to others,” the Oxford and Harvard University-educated banker said. “The net result could be a sub-optimal global recovery.”

The Financial Times in March named Carney as one of 50 people who will shape the future of capitalism.

Canada can play a role in shaping global financial policy because it follows the open and coherent policies that it advocates, he said.

The country’s 21 banks weathered seizures in credit markets last year without government aid partly because Canada’s higher capital requirements and loan limits helped lenders avoid most of the writedowns and losses that crippled global competitors, even as the nation’s economy slipped into a recession.

Last month, Carney said he’s disappointed by “pushback” from global banks against reforms spelled out by G-20 leaders in Pittsburgh, such as curbing risk-taking by better aligning incentives behind compensation policies.

Bank Profits

On Oct. 26, Carney said that banks around the world should use their profits, which are resulting from government support and reduced competition, to boost capital instead of paying bonuses.

To reduce the threat posed by banks to the financial system, institutions could prepare plans to unwind themselves in an orderly fashion if need be -- so-called “living wills,” said Carney.

He also repeated that regulators could limit the credit cycle by requiring financial institutions to hold more capital in good times, and allowing them to hold less when credit is scarce.

At home, Carney slashed the key interest rate along with other global banks, cutting it by 3.75 percentage points to a record 0.25 percent in April. He then pledged to leave it there through June, 2010 unless the inflation outlook shifts.

Break With Bernanke

In a break with the U.S., he chose not to follow Bernanke in acquiring poorly performing assets from banks or creating money to stimulate the economy.

Instead, Carney injected liquidity into Canada’s financial system with purchases of short-term, liquid assets, making it easier to unwind.

“He played his cards well,” said Mark Chandler, a fixed- income strategist at RBC Capital Markets, who was chief strategist at Goldman Sachs in Toronto when Carney ran the firm’s Canadian investment-banking operations. The notion of buying good assets “was not in vogue at all” at the time.

The decision now means that Canada isn’t “worrying about how we’re going to get funny assets off the central bank’s books,” Chandler said.

Carney was only the second outsider to be appointed head of the central bank since it was formed in 1934, bringing his experience to the job at a time when the fallout from the subprime mortgage crisis was just about to bring an end to Canada’s longest economic expansion since World War II.

He was appointed by Prime Minister Stephen Harper based on a nomination from the bank’s board of directors.

Stock Market

Since Carney took over, Canada’s Standard & Poor’s/TSX Composite Index has dropped 12 percent compared with declines of 21 percent for the S&P 500 and 17 percent for the MSCI World Index of developed markets. S&P/TSX financial stocks, the biggest industry on the Canadian index, have fallen only 13 percent versus 47 percent for their S&P 500 peers.

“He’s handled the financial crisis brilliantly,” Donald Guloien, chief executive officer of Manulife Financial Corp., North America’s largest insurer by market value, said in a Nov. 18 interview. “The financial crisis hasn’t been as great in Canada as other places around the world.”

Canada was the only G-7 nation to balance its budget for 11 consecutive years, before a stimulus package aimed at sparking growth pushed the country to a deficit.

“Carney has been the right man for the times,” said Eric Lascelles, chief economics and rates strategist at TD Securities Inc. in Toronto, a unit of Canada’s second-biggest bank. “Someone steeped in the mechanics of the financial markets, connected to the necessary private and public sector players and confident enough to take the bold action.”

Soundest Banks

In September, Canada retained its position as home to the world’s soundest banks, according to a competitiveness report by the World Economic Forum. The U.S. was 108th out of 133 countries, one below Tanzania.

Carney will also help reshape the Bank of Canada’s six- member rate-setting panel next year, because he sits on the board of directors that will nominate a new Senior Deputy Governor for cabinet approval and appoint a new Deputy Governor.

Carney was born in Fort Smith, a town of 2,400 halfway between Calgary and the Arctic Circle. A father of four, he holds a doctorate in economics from Oxford University and an undergraduate degree from Harvard University.

Soccer Coach

“He coaches his daughter at soccer, which is kind of remarkable if you think about that: the governor of the Bank of Canada standing on the side of a soccer field,” said Doug Guzman, 44, who used to work at Goldman Sachs and is now head of global investment banking for RBC Capital Markets. “He spends a lot of time with his kids.”

Carney started at Goldman Sachs in London as an analyst in 1988, later working in Tokyo and New York before taking his last job with the company in Toronto. After a hiatus to complete his doctorate, he became co-head of sovereign risk and executive director of debt capital markets, advising governments in Europe, the Middle East and Africa.

In 1998, Carney moved to New York as vice president of corporate finance, before moving back to Canada to help Goldman Sachs build investment-banking relationships in Toronto.

He left Goldman Sachs in 2003 to join the central bank as deputy governor.

Guzman remembers when Carney announced he was leaving.

“I think I was actually the first person outside of his wife who he told,” Guzman said. “We were in a plane flying back from Montreal sitting aisles across from each other and he leaned over and said ‘I’m leaving Goldman.’”

“At the time that sounded like the craziest thing in the world,” Guzman said. “What are you doing? You’re working at one of the best investment banks in the world and you’re on a terrific path.”

Carney responded: “I’m going to go be deputy governor, and I don’t know how it works out, but I think there’s a chance someday I could be governor.”

To contact the reporter on this story: Greg Quinn in New York at gquinn1@bloomberg.net.

Last Updated: November 20, 2009 00:00 EST