ECB Oversight Too Close for Comfort?

With memberships in banking associations and speeches by directors at industry events, the European Central Bank is struggling to keep the appropriate distance from the bankers it regulates, some critics say.
ECB President Mario Draghi spoke to guests at London's Guildhall in May 2013. Some allege the European Central Bank's relationship to the banking industry is too close, which the central bank disputes.

In May, Benoît Coeuré, a French member of the European Central Bank's core six-member management board, divulged information about upcoming bond purchases by the euro zone's central bank to representatives of the financial sector.

Some used their information advantage to engage in currency market transactions, as rapid market movements later revealed. The speech by Mr. Coeuré, a member of the ECB's executive board, was not made available to the general public until the next morning – because of an error, the ECB said.

That was a mistake and Mr. Coeuré is now drawing the consequences from his actions.

"I have made the personal decision to no longer speak at events organized by banks," he said in an interview with Börsen-Zeitung, a German financial newspaper. "The debate has clearly shown that central banks must be above all suspicion of being too close to market players," he added, explaining his decision.

We are sharply critical of this dual and unclear role of an official representative of the ECB in something that we continue to view as a lobbying vehicle for the financial sector. Erik Wesselius, Corporate Europe Observatory

Some of his colleagues take a less rigid approach, however.

The Frankfurt-based ECB's president, Mario Draghi, repeatedly speaks, behind closed doors, to and with executives of major financial institutions who, like Mr. Draghi, are members of the "Group of Thirty."

The G-30 is an exclusive club founded in 1978 by American banker Geoffrey Bell, on the initiative of the Rockefeller Foundation.

In addition to central bankers such as Mr. Draghi and Mark Carney, the governor of the Bank of England, members include private bankers such as Jacob Frenkel, chairman of JP Morgan Chase International, and Philipp Hildebrand, vice-chairman of Blackrock, the world's largest asset manager.

It first became clear that membership in this group could trigger problems – similar to those resulting from Mr. Coeuré's May appearance – when U.S. Federal Reserve Chairwoman Janet Yellen delivered optimistic remarks about the U.S. economy at a G-30 event back in October 2014.

A news agency learned of the incident and later reported the news, which had the potential to affect interest rates.

Unlike Mr. Draghi, however, Ms. Yellin is not an actual member of the G-30 group. In contrast to European central bankers, U.S. regulators are required to leave the advisory body once they take public office at the Washington D.C.-based Federal Reserve. The exception to this rule is the presidents of the regional Federal Reserve districts around the country, which are considered private institutes.

Richard Werner, a banking professor at the University of Southampton, said Mr. Draghi's membership shows that the G-30 encourages a "questionable closeness" between central bankers and the world's largest banks. He argued that the ECB president's role in the group should be more closely investigated.

The ECB, however, has said it sees no conflict of interest, and points to other independent bodies that have agreed with that position.

The central bank notes that in 2013 the E.U. ombudsman rejected a complaint brought by Corporate Europe Observatory against Mr. Draghi's G-30 membership.

The ombudsman did not consider it dangerous that the head of the ECB, which since November has been charged with supervising the largest banks in the 19-nation euro zone, is identified with G-30 reports full of recommendations to bank regulators.

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At the time, the ombudsman stressed that each of these reports included the following statement: "The views expressed in this document are those of the working group and do not necessarily reflect the views of all individual members of the Group of 30."

This, he said, made it sufficiently clear that Mr. Draghi did not necessarily share the recommendations.

But this note has been missing in the G-30 reports on banking supervision published since then.

In the introduction to its latest report in July, G-30 Chairman Jean-Claude Trichet, Mr. Draghi's French predecessor as ECB president, seemed to speak for the entire group when he entrusted the report, which advised on the need for culture change at banks, to regulators.

Only the vague remark that a working group had compiled the report alludes to the possibility that the remaining members may not necessarily share the recommendations.

G-30 Executive Director Stuart Mackintosh insists nothing has changed, and that if any ambiguities have arisen, they are "an artifact of the editorial process."

The ECB stated: "The compatibility of the membership of senior ECB representatives in the Group of Thirty is not primarily a question of the wording of the 'disclaimer' in their reports, but first and foremost a question of the objectives, composition and activities of the group."

According to the ECB, the ombudsman determined that the G-30 is a discussion forum with relevance for the work of the ECB, and that ECB representatives could therefore legitimately take part in both its closed-door and public discussions.

Mr. Draghi is not the only G-30 member from the ECB. Julie Dickson was more directly involved than Mr. Draghi in the G-30's last report on banking supervision.

Ms. Dickson is a member of the ECB's supervisory board, the decision-making body of the "Single Supervisory Mechanism" that since November has been put in charge of watching over the euro zone's largest banks. She too attended the G-30 working group's meetings as an "observer."

According to the "acknowledgments," the observers contributed their intellect and experiences.

Erik Wesselius of Corporate Europe Observatory said: "We are sharply critical of this dual and unclear role of an official representative of the ECB in something that we continue to view as a lobbying vehicle for the financial sector."

The ECB was unwilling to comment on Ms. Dickson's role in the working group.

 

Norbert Häring is an editor with Handelsblatt, focusing on monetary policy and financial markets. To contact the author: [email protected]