Has Super Mario Draghi Met His Match?

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And this might become a problem for the Fed.

By Don Quijones, Spain & Mexico, editor at WOLF STREET.

ECB President Mario Draghi wields more power than just about any other public official in Europe, perhaps even including Angela Merkel. The organization he heads not only controls the monetary policy levers of the entire Eurozone, it also supervises the region’s 130 biggest banks. As we’ve seen in recent weeks, it even has the power to decide which of Europe’s struggling banks get to live and which don’t.

Yet it is answerable to virtually no one. Until now.

Emily O‘Reilly, the EU Ombudsman, an arbiter for the public’s complaints about EU-institutions, has just sent Draghi a letter asking him to explain his role in the potentially compromising Group of Thirty (G30) and how he makes sure that he does not divulge insider information or runs into conflicts of interest. The tenor, tone and direction of O’Reilly’s inquiries make it clear that she means business.

The Washington-based G30 was founded in the late seventies at the initiative of the Rockefeller Foundation, which also provided start-up funding for the organization. Its current membership reads like a Who’s Who of the world of global finance. It includes current and former central bankers, many of whom now work or worked in the past for major financial corporations, such as:

  • Mario Draghi (ECB, Bank of Italy, Goldman Sachs)
  • Ben Bernanke (former Chairman of the Federal Reserve)
  • William Dudley (New York Fed, Goldman Sachs)
  • Timothy Geithner (Warburg Pincus, former US Treasury Secretary, New York Fed)
  • Mark Carney (Bank of England, Bank of Canada, Goldman Sachs)
  • Axel Weber (UBS, ECB, Bundesbank)
  • Haruhiko Kuroda (Bank of Japan)
  • Christian Noyer (Bank for International Settlements, Bank of France)
  • Jaime Caruana (Bank for International Settlements)
  • Jacob Frenkel (JP Morgan Chase, Bank of Israel)
  • Philipp Hildebrand (BlackRock, Swiss National Bank)




It also includes senior representatives of financial corporations with subsidiaries supervised by the ECB, including:

  • Gail Kelly (UBS)
  • Tidjane Thiam (Crédit Suisse)
  • Guillermo de la Dehesa (Santander)
  • E. Gerald Corrigan (Goldman Sachs)

And it includes economists such as Lawrence Summers, Paul Krugman, and Kenneth Rogoff.

This group of very important people meets twice yearly to (in the group’s own words) “deepen understanding of international economic and financial issues, and to explore the international repercussions of decisions taken in the public and private sectors by market practitioners and policymakers.”

Given the outsized impact central bank policy has on the evolution of financial markets, a meeting between their senior representatives and top bank executives should raise eyebrows, particularly in light of the potential for insider information to change hands. The ECB has already been caught sharing privileged information with representatives of top banks and hedge funds.

At the last G30 meeting Draghi apparently met with representatives of Credit Suisse, Deutsche Bank, BridgeWater Associates, BlackRock, Morgan Stanley, Munich Re, and AXA. If they were given indicators of future ECB policy or actions, they would have massive risk-free opportunities to enrich themselves as well as huge advantages over all other market participants, including their biggest rivals.

This is what prompted the Brussels-based NGO Corporate Europe Observatory (CEO) to lodge a complaint with the EU Ombudsman against Draghi’s membership of the Group of Thirty. In January the Ombudsman, O’Reilly, launched an investigation into the matter. In March her inquiry team sat down with representatives of the ECB to discuss the inquiry and inspect the relevant documents. Now she has sent a letter with pointed questions to Mario Draghi, who has until September to respond to them.

As German financial journalist Norbert Häring notes, some of the questions will not be easy for Draghi to “answer satisfactorily.”

Particularly difficult to dodge will be these questions:

  • Question 5 asks how the ECB protects itself against the risk of conflicts of interest in fora like the G30.
  • Question 13 questions the appropriateness of the chair of the ECB’s Ethics Committee, Jean Claude Trichet, also serving as the Honorary Chairman of the Group of 30.
  • Question 16 raises the issue of ECB independence in light of its membership of deeply compromising fora like G30.

The most difficult question for Draghi to answer will be Question 9:

Where ECB members attend meetings organised by the Group of 30, they must abide by Treaty transparency requirements. However, Group of 30 meetings are not transparent. Would the ECB consider proactively informing the public of the content of these meetings, providing agendas and non-confidential summaries?

Such a reasonable, politely worded request will be difficult to reject out of hand, at least with anything remotely resembling a justifiable excuse. And saying yes would open a whole new can of worms for the ECB, as Häring points out:

Saying yes would change the nature of the group and presumably make it less attractive to its commercial members. Many topics that the G30 has presumably been discussing cannot be discussed any more, if the agenda and a summary are provided. It would simply be too obvious to the public that information gained by representatives of commercial institutions during these discussions is valuable and that conflicts of interest can hardly be avoided.

It could get even worse, though. If Draghi would have to pull out of the G30, this would put tremendous pressure on other central bankers to do the same.

That would include the most important central bank of all, the Federal Reserve. The seven members of the Fed’s Board of Governors are officials of the federal government and are forbidden from participating in closed-door meetings with bankers like those of the G30. But the Fed gets around this restriction by sending the president of the New York Fed, which as a private institution, owned and controlled by the banks it oversees, and thus not subject to the same rules governing public officials. Hence Dudley’s presence at the G30. Dudley is also the vice-chairman of the policy-setting Federal Open Market Committee (FOMC). But if the ECB were pressured to drop out of the G30, the NY Fed’s continued membership would be more or less untenable.

Whatever its outcome, the EU’s Ombudsman’s inquiry into the ECB’s membership of the G30 is a welcome step in the right direction. At long last, the cozy relationship between central bankers and the banks they’re supposed to regulate is getting some of the attention it deserves. And even Super Mario and his army of lawyers and advisors will have their work cut out answering O’Reilly’s pointed questions without giving the game away completely. By Don Quijones.

Only two things keep many European banks alive. Read…  Many EU Banks Would Collapse Without Regulators’ Help: Fitch




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  28 comments for “Has Super Mario Draghi Met His Match?

  1. raxadian
    Jul 10, 2017 at 7:52 pm

    Well, is not like he is the G30 only source of information. This is a step in the right direction sadly is a very small step.

  2. unit472
    Jul 10, 2017 at 7:53 pm

    The EU and ECB haven’t met the rule or regulation they can’t break or ignore as necessary. Both are essentially lawless organization run for the benefit of the ‘project’.

    • Argus
      Jul 16, 2017 at 12:46 pm

      Indeed. The response to the questions will contain much obfuscation and few direct answers.

  3. cdr
    Jul 10, 2017 at 7:59 pm

    Dear Emily O‘Reilly,

    Thank you for these questions. At G30 meetings, we let out hair down, drink a little too much and swear a lot because it’s fun. Dirty jokes are side splitters here. You should hear them. We all take gentleman’s oaths to keep our recreation here private. Like Skull and Bones, only more exclusive and more fun. Other than that, let me quote the famous candidate last year by repeating repetitively “I don’t recall”.

    Cheers to you. Back to work, and make no mistake, I will not stop working to ensure the Eurozone is forever.

    Keep in touch. I enjoy your letters.

    Mario

    • Bruce Adlam
      Jul 10, 2017 at 8:49 pm

      Plus i will do whatever it takes

      • JungleJim
        Jul 10, 2017 at 10:24 pm

        That is exactly the problem, he really will or at least will try to. And that G30 roster includes a number of the people who are responsible for the current mess. With or without Super Mario, they are dangerous. One of the group’s members Paul Krugman wrote an apologia after the 2008 imbroglio entitled “How Did Economists Get It So Wrong”. It’s worth reading because we seem to be doing it again.

        http://www.nytimes.com/2009/09/06/magazine/06Economic-t.html

    • Maximus Minimus
      Jul 10, 2017 at 10:03 pm

      Dear Ms. O’Reilly,

      Before I answer your questions, I have a few questions of my own:
      1. Who are you, and did you verify with your boss if you can write to me?
      2. Do you know what an oath of secrecy to a lodge is (apparently not)?
      3. Did you make sure your NGO hippies aren’t funded by some usual suspects which have been identified by our dear media.
      4. Do you know the term “doing god’s work”?
      Look forward to hearing from you.

      Your’s truly,
      Mario

      • Rates
        Jul 10, 2017 at 10:38 pm

        LOL. Right on. As usual nothing going in the Eurozone.

  4. d
    Jul 11, 2017 at 6:07 am

    “Emily O‘Reilly, the EU Ombudsman”

    Now we watch to see how much longer she remains in that position, and if the ECB continues to be in the EU Ombudsman’s office mandate.

    Little public annoyances like this are generally quietly removed in the EU when they ask the wrong questions of the wrong people. From the UE and ECB ‘s point of view.

  5. Stevedcfc72
    Jul 11, 2017 at 6:32 am

    The problem with the ECB is that it can’t be trusted, you only need to look at the Spanish-Italian banking issues over the last month to see there is a massive hiding of issues within that sector currently.

    The ECB will also be aware of ‘interest income’ being recognised by banks on unlikely to pay debts just to make their numbers look better than what they actually are.

    • Frederick
      Jul 11, 2017 at 6:38 am

      No different than any of the others than Steve They are ALL one entity you know that right?

  6. Chris Wagner
    Jul 11, 2017 at 8:01 am

    Quote: “The seven members of the Fed’s Board of Governors are officials of the federal government and are forbidden from participating in closed-door meetings with bankers like those of the G30.” Excuse me, Wolf. Are you saying the FED is an arm of the Federal government?
    Since 1913, it has been no more “federal” than FedEx. It’s a private banking cartel… “The creature from jekyll Island” is highly recommended to All.

    • Jul 11, 2017 at 8:38 am

      The Federal Reserve System has different components – and it’s a hybrid. Among the components:

      The Board of Governors is federal and its employees are federal employees. The seven members include Yellen. All seven are appointed by the President and confirmed by the Senate. They receive their salaries from the Federal Government. This is the part of the Fed that is federal. But it’s relatively small.

      Here is its website: https://www.federalreserve.gov/ Note the “.gov” (federal government).

      The 12 regional Federal Reserve Banks, including the NY Fed, which the article mentioned. They’re private institutions owned and run by the financial institutions in their districts.

      Here is a list of the 12 FRBs: https://www.richmondfed.org/faqs/frb All 12 FRBs have their own websites, which all end in .org (private organization and not government).

      • Frederick
        Jul 11, 2017 at 8:47 am

        Shame on you Mr Richter for censoring comments What happened to your sense of humor? Trying to stay politically correct are we?

        • Jul 11, 2017 at 9:09 am

          Sorry, Frederick. Yes. I saw your humor. But I also saw where you were going with this. And that’s off-limits here.

        • Frederick
          Jul 11, 2017 at 10:44 am

          Wolf Pardon my honesty but I just couldn’t help myself The truth is so VERY obvious More Silver anyone?Its on sale By the way I respect you and your site and understand your actions completely Keep up the good work sir

      • Maximus Minimus
        Jul 11, 2017 at 10:33 am

        Interesting. I thought, the FRBs were also government offices. Is the NY Fed more equal among the equals?

        • Jul 11, 2017 at 10:51 am

          Yes!! The NY Fed is the most powerful entity among the FRBs. It handled all the bailouts during the Financial Crisis, and it’s handling the securities trading associated with QE (balance sheet) and maintaining the target rate. Usually (always?) a former Goldman guy is in charge (these days it’s Dudley).

    • Jul 11, 2017 at 9:39 am

      Chris,

      BTW, President Trump just nominated Randal Quarles to the Board of Governors as chief of regulating big banks. So if the Senate confirms him, he’ll be the new member of the seven-member board. And he too will become a federal employee.

      After that, there will still be two vacancies on the Board of Governors, and Trump will soon nominate some people to fill those slots.

      • Frederick
        Jul 11, 2017 at 10:46 am

        Perhaps Jared would be a contender or Ivanka No Just Jared on second thought lol

  7. mean chicken
    Jul 11, 2017 at 10:02 am

    “The tenor, tone and direction of O’Reilly’s inquiries make it clear that she wants in on the action.”

    There, I fixed it!

  8. Sean
    Jul 11, 2017 at 12:39 pm

    Emily O’Reilly started out as an intern at the Concord Monitor,NH,which editorially is equatable with the Washington Post.Subsequently she worked as a journalist for the Irish Independent writing pieces which would be at home ,politically at least, in the WP.
    She was appointed by the Irish government as the Freedom of Information Commissioner for Ireland.She published some reports that were embarrassing to the powers that be ,but confirmed what everyone in Ireland suspected.
    Consequently she was ‘promoted’ at the behest of the Irish government to a plum EU job. Thats how Ireland deals with malcontents it can no longer control.
    What can the EU ‘promote’ her to?

  9. walter map
    Jul 11, 2017 at 3:24 pm

    The banking cartel is sovereign, not nations, and certainly not peoples, although it may sometimes serve their purposes for it to appear otherwise. They have largely controlled western history for their own interests since at least the end of the 19th century. It may be helpful to remember that Napoleon himself admitted that he was defeated by a banker, and not Wellington.

    “… the powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basle, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations.”

    Introduction by James Chadwick to

    Quigley, Carroll. Tragedy and Hope: A History of the World in Our Time. New York: Macmillan, 1966. Print.

    As a respected Georgetown professor of history, teacher and confidante of presidents, ministers, and magnates, it is hardly likely that Quigley could have been mistaken. Chadwick himself diligently assured himself over many years that the political classes of the U.S. and Europe take it very much for granted.

    Since Ms. O‘Reilly cannot be unaware of this, one must assume her posturing is merely a gimmick to appease the masses in some way.

    “Has Super Mario Draghi Met His Match?”

    At most he’s playing along with the ruse.

  10. Frederick
    Jul 12, 2017 at 5:33 am

    ZeroHedge is running a story about a guy named Cohn who may very well be our next FED chatiman At least His name isn’t Cohen right? Wolf I don’t expect you to let this one slide either

    • Jul 12, 2017 at 7:35 am

      BTW, Fed chairs have NOT typically been former Goldman people. Goldman normally runs the NY Fed. So Cohn would be the first Goldman guy as Fed Chair in a while. Which would give us a Goldman guy on top of the Fed, and another Goldman guy on top of the NY Fed. And speaking of exceptions… Volcker, who was Fed chair before Greenspan, and who never worked for Goldman, was of German extraction (his grandparents were German immigrants).

  11. R Davis
    Jul 15, 2017 at 12:04 pm

    Emily O’Reilly – good for you girl!

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