Many of these banks are implicated in the biggest financial crimes.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
No single institution has more influence over the lives of European citizens than the European Central Bank. It sets the interest rates for the 19 Member States of the Eurozone, with a combined population of 341 million people. Every month it issues billions of euros of virtually interest-free loans to hard-up financial institutions while splashing €60 billion each month on sovereign and corporate bonds as part of its QE program, thanks to which it now boasts the biggest balance sheet of any central bank on Planet Earth.
Through its regulatory arm, the Single Supervisory Mechanism, it decides which struggling banks in the Eurozone get to live or die and which lucky competitor gets to pick up the pieces afterwards, without taking on the otherwise unknown risks.
In short, the ECB wields a bewildering amount of power and influence over Europe’s financial system. But how does it reach the decisions it makes? Who has the ECB’s institutional ear?
The ECB has 22 advisory boards with 517 seats in total that provide ECB decision-makers with recommendations on all aspects of EU monetary policy. A new report by the non-profit research and campaign group Corporate Europe Observatory (CEO) reveals that 508 of the 517 available seats are assigned to representatives of private financial institutions.
In other words, 98% of the ECB’s external advisors have some sort of skin in the game. Of the nine seats not taken by the financial sector, seven have gone to non-financial companies such as German industrial giant Siemens and just two to consumer groups, according to the CEO report.
In response to questions by CEO, the ECB said that its advisory groups help it to gather information, effectively “discharge its mandate”, and “explain its policy decisions to citizens.”
The 508 finance industry representatives sitting on these 22 groups represent a total of 144 companies and trade associations and are made up of a variety of financial market agents including banks, investment funds, insurance firms, clearing houses and central securities depositories.
But there is a very clear core of institutions that, through the number of seats they hold on the advisory groups, appear to enjoy disproportionate influence over ECB decision making:
- Euroclear, a Belgium-based clearing company that is the largest international central securities depository in the world (23 seats)
- Deutsche Bank (18 seats)
- BNP Paribas (17 seats)
- Société Générale (16 seats)
- Unicredit (15 seats)
- Commerzbank (13 seats)
- Clearstream, one of the world’s largest settlement and custody firms for domestic and international securities. (12 votes)
- Citi (13 seats)
- Crédit Agricole (11 seats)
- Intesa Sanpaolo (11 seats)
- Nordea (11 seats)
- Santander (10 seats)
- Monte Titoli, an Italian securities settlement system (10 seats)
- BNY Mellon (10 seats)
- HSBC (9 seats)
- ING (9 seats)
Taken together, the above institutions hold 208 of the 517 seats, or 40%, on the ECB’s advisory groups. With the exception of Euroclear, Clearstream and Monte Titoli, which are not banks, and Italy’s Intesa Sanpaolo, all of them feature on the Financial Stability Board’s list of global-systemically important banks (G-SIBs). Four of them — Deutsche, BNP Paribas, Citi and HSBC — are among the six biggest, most dangerous banks on the planet.
Many of the above institutions were implicated in two of the biggest financial crimes of this century, the Forex and Libor scandals. In fact, according to CEO, banks involved in a separate forex manipulation scandal that emerged in 2013 have been heavily represented on the ECB’s Foreign Exchange Contact Group.
In other words, these banks are supposed to be under direct ECB supervision, and yet they have been repeatedly caught committing serious financial crimes. And now it turns out that they enjoy more influence over ECB decision making than anyone else, begging the question: how can the Eurozone’s most powerful financial regulator possibly regulate European financial institutions when it receives most of its advice and guidance from their senior executives?
Nor is it any wonder that the ECB’s Chairman, Mario Draghi, and the Chair of the ECB’s Supervisory Board, Daniele Nouy, have a clear bias for large banks when most of the time they’re being counselled by representatives of those selfsame banks.
CEO’s report comes hard on the heels of an investigation by the Berlin-based NGO Transparency International that raised concerns about the ECB’s conflicts of interests, lack of transparency, and incestuous relationship with the very institutions it is meant to supervise, as well as monetarily support through its myriad financial welfare programs: the big banks.
The central bank is also under investigation by the EU Ombudsman for the close involvement of a number of its high-level officials with the Group of 30, a secretive forum of influential academics, policy makers and senior financial executives representing banks like UBS, Credit Suisse, JP Morgan Chase, Santander and Goldman Sachs.
Even for Corporate Europe Observatory, which has been investigating and exposing the effects of corporate lobbying on EU policy making for the last 20 years, the extent of corporate capture at the ECB is staggering. “The industry bias across the ECB’s advisory groups is the worst we have seen at any of the EU institutions so far,” says the report’s author Kenneth Haar. “With more than 98% of advisers coming from private finance companies, this is corporate capture at its most extreme.”
If the last ten years are any indication, it’s that nothing will change. After all, the biggest advantage of being a major central bank is you’re independent from oversight, which essentially means you’re answerable to virtually no one — apart from, of course, the senior financial executives that help design your monetary policy. By Don Quijones.
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