A private club for central bankers, regulators, and bankers.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
On Wednesday, ECB President Mario Draghi suffered the rare ignominy of being criticized in public by the EU’s Ombudsman, Emily O‘Reilly, whose job it is to arbitrate public complaints about EU institutions. The complaint against Draghi was that he had compromised his public role by regularly attending the Group of 30, a secretive club of corporate and central bankers.
In her response to the complaint, O‘Reilly recommended that Draghi should suspend his membership of the group for the remaining duration of his term.
“The implied closeness of the relationship through membership – particularly between a supervising bank and those it supervises – is not compatible with the independence obligation of an institution such as the ECB,” O’Reilly said.
Previously called the Consultative Group on International Economic and Monetary Affairs, the Group of 30 (or G30) is a Washington DC-based private group whose members consist of central bank governors, private sector bankers and academics. Membership is by invitation only.
Its current membership list reads like a Who’s Who 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)
- Agustín Carstens (Bank for International Settlements, former Chairman of Bank of Mexico)
It also includes senior representatives of financial corporations with subsidiaries supervised by the ECB, including:
- Gail Kelly (UBS)
- Tidjane Thiam (Crédit Suisse)
- E. Gerald Corrigan (Goldman Sachs)
- Jacob Frenkel (JP Morgan Chase, Bank of Israel)
- Philipp Hildebrand (BlackRock, Former Chairman of the Governing Board, SNB)
And it includes economists such as Lawrence Summers, Paul Krugman, and Kenneth Rogoff.
While the group prides itself on being a well-intentioned forum for “deepen(ing) understanding of international economic and financial issues,” its abject lack of transparency makes it an ideal setting for the trading of insider information or favors.
“The transparency standards of the G30 fall below the standards applied by the ECB in the context of other fora, or even the transparency standards applied by the G30 at the time of the Ombudsman’s first G30 case in 2012,” notes the Ombudsman’s report. Of the G30’s board of trustees only the identity of its chair, Jacob A Frenkel, the chairman of JPMorgan Chase International, has been made public.
At a G30 meeting last year, 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 huge 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.
While O’Reilly said there was no evidence of sensitive information being shared at the G-30, there could still be “a perception that, through the participation of members of the ECB’s decision-making bodies, the ECB could be open to influence in the shaping of new regulatory practices.” And it’s not as if the ECB hasn’t already got into hot water over sharing sensitive information with market players in other settings, such as when hedge funds at a London conference were warned that the ECB would be ramping up its QE program hours before the rest of the market.
For the ombudsman, the mere perception of impropriety is cause enough for concern. “Any lack of transparency could create a public impression of secrecy, which would reflect negatively on the image and reputation of the EU’s decision-making bodies, including the ECB,” O’Reilly said.
In light of this risk, O’Reilly not only requests that Draghi immediately end his membership of the G-30; she also calls for a complete ban on all future presidents of the ECB taking up membership of the club. The mere fact that the ECB has allowed its membership of the G-30 to taint its perceived institutional independence is tantamount to maladministration, she said:
“The ECB takes decisions that directly affect the lives of millions of citizens. In the aftermath of the financial crisis, and in consideration of the additional powers given to the ECB in recent years to supervise member state banks in the public interest, it is important to demonstrate to that public that there is a clear separation between the ECB as supervisor and the finance industry which is affected by its decisions.”
While the EU Ombudsman’s recommendations are non-binding, they do carry a certain amount of weight. The fact that someone with some degree of influence in Brussels’ corridors of power has cast a spotlight on the potentially pernicious influence of fora like the Group of 30 on the workings of supposedly independent central banks like the ECB is at least a tentative step in the right direction. By Don Quijones.
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