Draghi’s Membership in Murky G30 Financial Group Under Fire

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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  15 comments for “Draghi’s Membership in Murky G30 Financial Group Under Fire

  1. While in the US, no rules of conduct for public officials are broken by the membership of the president of the New York Fed in the G30, because (scandalously) the New York Fed is a private institution, controlled by the Wall Street banks that it is supervising, the same is not true for Britain. It is rather curious, that the British media seems to ignore the fact that the governor of the Bank of England is a member of the G30, even though it is obvious, that the issue is fully parallel to the Draghi-issue. The Bank of England has a code of conduct that forbids officials to act in a way that the impression of undue influence by interested parties could be created. See http://norberthaering.de/en/32-english/news/937-carney-g30

  2. Andrew says:

    This stinks. I think I could accept a group with current central bank chairman only. There is a serious risk of compromising the independence of CBs here though with private sector investment banks involved. Who determines policy in whose interest here? Do they let the bankers know of any QE/interest rate changes in advance? When this crash happens will these companies be bailed out?

    • cdr says:

      “Who determines policy in whose interest here?”

      My guess is they only talk a lot here. Nobody actually does anything unless they’re given instructions to follow. Then they go back to their respective central banks and carry them out in a coordinated fashion. These people are employees and philosophers only. A little frontrunning is to be expected.

      • Andy says:

        Group think then really. When crypto takes over (ignore the volatile speculation at the minute) there will be no need for such organisations. This technology will revolutionise how we spend and save and will remove the control of the incompetent central banking institutions over our lives. This needs to happen for our financial freedom.

  3. raxadian says:

    Just because he might stop going to reunions doesn’t mean he won’t keep them informed.

    How hard it would be to order some electronic monitoring and vigilance?

  4. cdr says:

    These must be the people who provide moral support and guidance about how the Eurozone will survive and prosper as long as Draghi goes big enough for long enough. The list reads like a who’s who of money printers and/or negative rate theorists/enthusiasts.

    I wonder which one first came up with the idea an entire continent can live on the credit card forever as long as money can be printed in unlimited quantities, rates can be made to go negative and stay there, and unlimited amounts of debt can be purchased at low rates using the printed money? All while ignoring/depending on saving confiscation due to low/negative rates.

    Of course, it works best if everyone does the same thing at the same time. One outlier can be a monkey wrench in the works if the outlier is big enough (hint:US Fed 2018+).

    Our world financial elite at work. Fortunately, none of the new crowd coming in is on the list. As long as they stay out, the group will be no more than a daisy chain.

    • cdr says:

      To continue:

      Were any of these clowns the one who invented interest on excess reserves (IOER); aka Paying Banks to Not Lend. How does that make the economy prosper? Probably not important as long as the banks are financially healthy from a gifted net interest margin.

      I noticed the group has a project that deals with pensions. How curious. The past decade of financialization has eviscerated pension funds due to forced low rates and bad pension management (estimated return much greater than actual return). Perhaps the best new idea they can come up with will be the Monetized Pension Plan Debt Program, where the debt is issued at negative rates and no principal payments are due until maturity, which is 100 years from now. The proceeds to be used to pay monthly benefits. Winner winner chicken dinner.

      Their next possible agenda will include speakers on”How to blame the new people for not doing things right”, “The benefits of cheap labor and open boarders in a deflationary world”, “Manufacturing inflation when income from savings no longer exists due to negative rates”, “Advanced excuse making that sounds scholarly – with math”, “Ignoring Econ 101”.

    • Plumas One says:

      Nomi Prins’ latest book “Collusion” makes a serious case
      that central banks have rigged the world and that central
      banks have become the markets. Prins writes that central
      banks are providing artificial stimulus to markets, the
      opposite of what free markets are all about.

      • B says:

        Free markets as it pertains to our experience, e.g. this life, is the epitome of an oxy-moron. At this time I would be more surprised if insider trading and sharing of sensitive wasn’t occuring.

  5. No problem the cartel of bureaucratic global central bankers is a highly interdependent group. What they know isn’t sufficient to worry anyone. Software programmers and accounts make the rules.
    This is where the Taylor Rule comes in. The Taylor rules says you can only do what your job description says you can do. That has enormous impact. If the Taylor Rule were applied in it’s most familiar example, the Feds interest rate formula, all manner of reading the Fed tea leaves, front running the Fed, understanding “Greenspeak” would be ended. Putting in back data on interest rates demonstrates the “rule” has done better than the bureaucrats, even if the proof is unscientific. The Taylor rule does prevent midlevel decision makers from going off the reservation.
    Blockchain is something like the Taylor Rule written in code. When Draghi says “I will do what it takes,” his dogma becomes conciliatory when his accounts/programmers whisper in his ear and he says “You can do that?” These people don’t know what they are doing, and the ones who do aren’t talking. Feel better now?

  6. Maximus Minimus says:

    Let’s make it clear, the G30 is not so much secretive as it is obscure. If Joe public hears the name G30, he puts it in his/her G memory bin, i.e. no comprendo; he is more interested in news and acronyms which starts with X. On the other hand if only those who like the G acronyms had the right to vote, and choose public official, things would turn around rather quickly. G30 or Davos would not be allowed to be secretive any more.

    • raxadian says:

      Is not as oscure as you think in the Internet era.

      Any person under forty will just look for information about it online. Or in the news site they read about it.

  7. Paul Morphy says:

    I can say hand on heart that at least one Irish official appointed to the agencies of the European Union has done my country proud for a change.
    As an Irishman, I want to commend Ombudsman Emily O’Reilly.

    And Wolf thanks for highlighting the Ombudsman’s report.

  8. John Henderson says:

    To guote queen Hilary…..”.what difference does it make”

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