Draghi’s Membership in Murky G30 Financial Group Under Fire

Yves here. Astute readers will notice that the “G30” label for a private organization that includes lobbyists and former government officials who have big ticket private sector sinecures is cheeky. The G7 and G20 are official forums for the largest world economies. The G30 label is an effort to give a private sector organization a veneer of being as legitimate as an official body.

The article focuses on the stink some parties have made about the potential for insider trading. As readers may have inferred, gathering like this exist to promote collusion and influence peddling cooperation and information sharing.

By Don Quijones, of Spain, the UK, and Mexico, and an editor at Wolf Street. Originally published 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 perceivedinstitutional 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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  1. The Rev Kev

    Ben Bernanke, Timothy Geithner, Lawrence Summers, Paul Krugman, Kenneth Rogoff – it’s always the usual suspects, isn’t it?

    1. RMO

      At least now I know that if the Earth is unfortunate enough to be struck by a fair sized meteor I can wish that it strikes the next G30 meeting….

      1. Isotope_C14

        Indeed. Kinda hoping someone detonates a Neutron bomb in Davos this weekend, it could save the world. Well, if the Koch bros are there….

  2. Colonel Smithers

    Thank you, Yves.

    It won’t surprise the NC community that, around 2010, a G30 paper on risk management and written by Gerald Corrigan was doing the rounds and often misinterpreted as official guidance. No clarification was ever issued.

    O’Reilly is right to call out Draghi. It’s long overdue. An investigation into his investments, and those of other officials recruited from the private sector, would not go amiss, either.

  3. JTMcPhee

    This is hardly “calling out Draghi.” Politely hedged and worded bit of minatory prose. No teeth. No look behind the curtain. “While there is no evidence…”

    Appearance of impropriety? Does that matter even a little bit, any more, when us mopes have been stuffed full of a vast sense of futility, of the awareness of the futility of “the audacity of hope,” of the cultivated awareness that the present is, and the future is ever more ineffably becoming, a “Sh!thole,” and all institutions lack, and have cast off, and can now resist with impunity any efforts to impose, any significant drivers and incentives for the Elites with even a bit of access to the real power to “Do Better” ™ in any way that might lead to decent lives for humans and other species?

    Between repression, oppression and depression, there’s hardly a sniff of restive masses inclined to break their chains, with but few even aware of or distressed by them. And no organizing principle, in any event, that the billions mostly aspiring to MORE! ™ of the meat off the finite carcass of Gaia, run to ground by all of us abetting the wolves and hyenas and jackals and vultures, would or could aspire to follow…

    “It’s a massive club, and you mopes ain’t in it.”

    1. Eustache De Saint Pierre

      Amen to that reverend & I am sure that George would appreciate the joke that Carney could be held accountable for any dubious dealings.

  4. JEHR

    What the 99% need is their own “free market” which cannot be accessed by the financiers or corporations that are now so nicely fattened up. This market would be based on the productivity of those who work for a living wage or salary. I have no idea how it would be set up, but only the 99% could access it and there would be no fees for participating (and no admission for the wealthy or for those who seek to avoid paying tax).

    Where does the money come from for starting up such an institution? Why from that basic wage everyone should be receiving in lieu of there being no inflation and no increase in compensation for workers. We would need some really good and honest accountants and lawyers running the funds with all the shareholders being those who are not rich. The workers would have the option of living off their shares or saving for things like retirement or buying a house. What an idea! Most of the true productivity that the rich take advantage of is from ordinary workers and we can let the wealthy keep making money from money until the cows come home while the ordinary workers invest in their own productivity. That would be a true revolution within capitalism.

    1. susan the other

      China recently downgraded our debt and gave us the same lecture we give them about not really being a free market because of their state owned enterprises. Clearly we create corporate monopolies intentionally. And clearly our finance industry is one of the biggest of our monopolies. So much so that we don’t have state-owned enterprises – we have enterprise-owned state(s). Really the G30 are the privateers of ponzi. The banksters for NATO it seems as there were no “management” experts from the heart of Africa; the Muslim ME; Russia; China. Nobody from South America. Our free market has turned in on itself with its former neocolonialism. Now we exploit our own democracies while pretending to be competitive. Just watched a PBS doc on China’s massive development of the Mekong watershed – another gigantic dam to produce hydro power. The comment the Chinese guide made was that as soon as the dam is on line it will be immediately profitable. Because there is no debt to service. Which raises the question, What do we think we are doing in this quagmire of private debt? It is insane. How can the G30 kid itself that their private profit model will even survive is beyond me. Its special “profits” are doled out by central bankers at the expense of society, not for the betterment of society.

  5. shinola

    A bit of the wisdom of Adam Smith might apply here:

    “people of the same trade seldom meet together … but the conversation
    ends in a conspiracy against the public or in some contrivance to raise prices.”

    Especially the “conspiracy against the public” part.

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