The President and the private finance club

Why the President of the European Central Bank, Mario Draghi, must leave the Group of Thirty - making the case before the EU Ombudsman decides on Corporate Europe Observatory’s complaint.

This month the EU Ombudsman is expected to reach a conclusion on Corporate Europe Observatory’s complaint about the European Central Bank and its President Mario Draghi. It centers on his continuing membership of the Group of Thirty (G30), which violates the Bank's own ethics rules. This background briefing makes the case for Draghi to withdraw his membership 1.

The complaint, filed in June 2012, states that the President of the bank Mario Draghi is in violation of the Banks own ethics rules by being an active member of an organization of private bankers and central bankers, the  G30. Over the last two decades, the G30 has acted as an effective lobbying vehicle for the positions of big private banks. Since the European Central Bank (ECB) controls access to loans for banks, and is increasingly entrusted with supervision of banks, membership to the Group by the EU’s most powerful central banker creates a potential conflict of interest and violates existing rules on relationships with private interests.

Over the past 4 years, Corporate Europe Observatory (CEO) has continuously shown how the close relationship between private bankers and regulators, civil servants and central bankers has helped precipitate the 2007-08 global financial crisis. The premise that the expertise of private sector actors on these matters can be deemed neutral, and they should therefore be closely involved in writing the rules, has been proven false and dangerous.

CEO has been investigating Draghi’s membership of the G30 since the autumn of 2011 and as a result has been in regular contact with the ECB. However, to date the Bank has refused to take the issue seriously and its official response has been extremely limited in light of the evidence presented. As a consequence, CEO has asked the Ombudsman to consider if the Bank' has respected its own ethics rules, and whether Draghi should be asked to step down from the G30.

The Ombudsman is expected to publish his decision this month, and this background briefing is intended to provide insight into the case and present  the arguments made by CEO. It is based on an abridged version of a response from CEO to a document called ‘the ECB opinion’2, which the European Central Bank issued in response to the arguments made by CEO. The opinion will be referred to throughout the text as it is the most important reflection of the Bank's position towards Draghi's membership of the G30.

This briefing comes in four sections.

The first section will answer “What is the policy of the G30, what has it achieved and how?” It will examine evidence from the previous two decades which highlight the explicit political positions and influence of the G30.

The second section will examine how the G30 works: who are its members? How are they organised? How is it funded?  How is it represented in public?

The third section will examine whether Mario Draghi's membership of the G30 contravenes the Bank's own ethics rules.

The fourth section will briefly conclude.

1. Lobbying for self-regulation – the role and policy of the G-30

The guiding principles of the G30 has historically been deregulation and self-regulation of the financial sector. It has had considerable success in framing international rules along those lines, advancing the interests of Wall Street and Europe’s biggest investment funds and banks by removing obstacles to financial flows and investments.

This may make the G30 sound like a classical financial lobby group, but some of its characteristics set it apart. It is indeed run by important figures from the private financial sector, including Wall Street bankers from JP MorganChase and Goldman Sachs, but uniquely, many of its members are central bankers from across the globe. Since it was founded in 1978, Chief Executives from some of the biggest private banks in the world have been able to enjoy close discussions with important central bankers within the framework of the G30, often in strict confidentiality. It uses the inclusion of public personalities to cultivate a public image as a think tank rather than a lobby group3, but its history reveals that the presence of central bankers has served only to make it more effective as lobbying vehicle for vested interests.

The G30 has worked systematically over two decades to promote rules that allow banks to look after themselves and regulators to take a back seat. In the two cases presented here, this proved to be a disastrous policy: the G30’s victories on regulation of complex financial instruments (derivatives) and on banking regulation led to international rules that paved the way for the financial crisis in 2008. The cases are based on primary research by academic Eleni Tsingou4.

Obscurity and laissez faire finance: the case of over-the-counter derivatives

Since the collapse and bailout of US insurance giant AIG and the bankruptcy of the investment bank Lehman Brothers in 2008, complex financial instruments have been a hot topic in the debate over financial regulation. The crisis clearly showed the need to adopt regulation and increase supervision of a hitherto obscure market, not least to make the markets on complex financial products transparent.
AIG’s owed its collapse to its heavy involvement in the “derivatives” trade. Derivatives are a financial product that enables a kind of betting on the markets, including the fluctuation of prices, the likelihood of defaults or bankruptcies and more. In AIG’s case, it was not trading the derivatives directly, but selling investors insurance policies in case the investment failed . But with the meltdown of financial markets in 2007 and 2008, AIG couldn’t honour its commitments and was bailed out by the US government.

In general, regulators had little knowledge about the derivatives markets at the time, because those markets had by and large been allowed to escape supervision, mainly due to the importance of “over-the-counter derivatives”. Over-the-counter derivatives are products which are traded without much public supervision, something which has been questioned since the nineteen nineties when the debate first began. From 1993 until 1999, derivatives were looked at with much suspicion. A number of financial firms including Bankers Trust, Gibson Greetings, and Merrill Lynch had suffered major losses while trading them, while failed derivatives investments by Orange County in California nearly led to its bankruptcy. But despite such negative experiences by big financial houses, the outcome of the debate still left derivatives largely unregulated, with little public oversight.

The G30 was an active and important participant in the debate at the time. In 1993 the group published a major report, written by representatives of JPMorgan, BNP Paribas, Morgan Stanley and the association of derivatives traders ISDA5. The key message of the report was that practically no public supervision or regulation was necessary, and that the private sector would be able to build a system of self-regulation. “Promoted as the definitive report on derivatives, those fancy financial products which few understand but many want to regulate, the G30 study provided a long list of arguments on why governments should keep out of their patch,” wrote the Australian Financial Review in 19946. The data used in the Group's report was provided by the lobby group for derivatives dealers, ISDA, and the international banking lobby group, the Institute of International Finance, “indicative of a concerted private sector effort to consolidate expertise on the topic”7- In other words, the G30 succeeded in making their report the authoritative source for both market participants and politicians.

Some scepticism was originally voiced in the internal debate in the G30. Paul Volcker (Federal Reserve) and Brian Quinn (Bank of England) were wary about the lack of consideration of systemic risk. But eventually, a compromise was reached within the group, which meant the two central bankers accepted the key parts of the report. A small episode indicative of the importance both central bankers and private bankers attached to the group, and of the way the internal procedures could deliver convergence among the different types of personalities inside the G30.

What followed was a concerted effort by many G30 members to make the proposals a reality. This meant answering how financial institutions were going to assess the financial risks associated with their derivatives investments by themselves, with no intervention from public regulators. JPMorgan made its own assessment model freely available in a surprise move, underlining the strong private sector commitment to internal risk management – to highlight that they saw no need for regulators to be involved. This was made even clearer when lobbyists from the private sector, such as the American Bankers Association8, embraced the G30’s proposals for unregulated derivatives trading. Other moves included seminars and work with the press, all of which saw G30’s positions and proposals embraced by the private financial sector.

However, it was the effort with the US Congress that proved decisive in securing global uptake. Here, the G30 was represented at hearings by Mark Brickel of JPMorgan and ISDA. Their successful performance in front of Congress led to the study being used as an authoritative source by several US regulatory agencies, lending it even greater importance. After only a couple of years, the G30’s approach self-regulation and self-supervision had defeated its critics.

Many analysts have – along with academic Eleni Tsingou – concluded that the organisation “acted to prevent regulatory involvement”9, and commentators wrote about it at the time. The (UK) newspaper The Independent wrote in 1993 that, ”The G30 study, which lays out a system of risk management that is essentially self-administered, is the industry's attempt to minimise government interference”10.

Letting banks look after themselves – the case of risk management

The story of the G30’s influence over banking regulation is in many ways similar to its capture of derivatives regulation. With only a few financial corporations dominating global financial markets, cross-border transactions caused problems for public regulators. If the financial corporations failed, the financial system would be in jeopardy. This meant the question of “systemic risk” required some sort of reform of international banking regulation. In the late nineties, the G30 was in a good position to set the terms of the ensuing debate. This unsurprisingly meant that in the area of risk assessment  of banks – as with other areas of international banking regulation – the proposals put forward advocated self-regulation and self-supervision.

The G30 had started advocating self-regulation in banking as far back as 1993. This came on the back of discussions and proposals within the official negotiations at the so called Basel Committee. Representatives from the central banks of 27 of the world’s biggest financial powers planned to introduce particular regulatory methods to combat “market risk” as part of the 'Basel framework'. These proposals were fiercely opposed by the financial industry11. The G30 followed up with a study in 1997, written by the chairmen of NatWest and Merrill Lynch12. The study focused on internal risk assessments, arguing that financial corporations should develop models to assess the risks of their own investments, in short, taking on  the responsibility to supervise themselves. Since capital requirements were ultimately set according to assesments of the nature of investments, this self-assessment of investments would in turn leave the banks with some leeway to keep down regulators demands for storing capital to secure the bank in hard times (called “capital requirements”).

A key tool promoted by the G30 was the so called value-at-risk model (or VAR). However, at the time there were voices who felt the model had major flaws. Two analysts at KPMG wrote in 1996: “The high profile endorsement of value-at-risk (VAR) by the Group of Thirty (G30) in 1993 and, more recently, the Basel Committee on Banking Supervision (the Basel Committee) has led to the rapid adoption of this approach as the measurement standard for market risk in the finance industry…However, risk managers are divided as to whether VAR is the last word in measuring risk or merely part of an evolving framework. Since VAR measures the impact of market movements on portfolios in normal markets, it does not consider extreme events. Understanding the potential impact of improbable and adverse events should be part of the risk measurement process.”13 Yet voices of this kind were ignored.

The clear policy positions outlined in the G30 report helped the private sector to come together under a common position which helped it as well as better organise itself in the debate on the so called Basel II agreements – the second set of international rules on banking agreed in the Basel Committee. Several lobby groups found “renewed impetus”14, including the Financial Services Roundtable, and the Counterparty Risk Management Policy Group, which was chaired by E. Gerald Corrigan of Goldman Sachs – a G30 member.

Unlike the process on over-the-counter derivatives, the battle over internal risk assessment was not a public political battle, but took place in the framework of the secretive international Basel II negotiations with little public exposure. However, to the extent there was a public debate, the G30 played its part. For example, in 1994 Charles Taylor, the execturive director of G30 at the time, spoke out on behalf of the G30 to support the banking lobby group IIF and a number of big banks such as JP Morgan, who were arguing that their VAR-model was a sufficient tool to deal with market risk15.

As Eleni Tsingou put it: “Indeed the work of the G30 led to intensified and arguably institutionalised policy functions for private actors in the development and eventually the content of Basel II”16. This was very helpful to lobby groups like the IIF: “The end result was that IIF preferences for market-generated standards, and self-regulatory oversight solutions were internalized in the Basel-process, and that consequently, large sophisticated banks were the best placed and best suited to the ensuing proposals”17.

History appears to have vindicated the initial critics of VAR. The outbreak of the financial crisis has led to renewed criticism surrounding the model's inadequacies in managing risk, leading to new debate on regulatory reform of risk assessment.

A political organisation – not merely a think tank

In its dealings with CEO over the matter of Draghi’s membership to the G30, the ECB has at no point been willing to move beyond characterising the G30 as anything other than a think tank, despite the available evidence. The preceding examples show the G30 displaying political preferences for self-regulation and self-supervision, successfully working to establish them as the norm in global financial governance. In her study of the G30, Eleni Tsingou concludes that “the G30 has played a significant part in altering and harmonizing transnational practices of regulation and supervision in a way that was consistent with private sector preferences”18. In her assessment, “a certain level of capture takes place”. “Groups such as the G-30 have not only legitimised private sector involvement, in policy-making but have also enabled private interests to become internalized in financial policy decisions”19.

The outcome of this kind of financial governance is deeply concerning and a matter of public interest, given that reforms designed and championed by the G30 helped bring about the financial crisis. Or as Tsingou puts it: “the severe shortcomings in the quality of governance: the regulatory and supervisory arrangements advocated by the G-30 were directly linked to the failings that brought about and exacerbated the financial crisis”20.

2. All traits of a lobby group: how the G30 works

Given the gravity of the matter, it would have been prudent for the ECB to explore the issues in depth. However, the ECB has failed to look into the complaint in any detail, and instead confined itself to a relatively brief and dismissive response to Corporate Europe Observatory’s complaint. According to the ECB, the G30 is “not a lobby or an interest group but a forum for exchanging views on global economic and financial issues.” To back up this claim, the ECB lists information on the G30 drawn in large part from the organisation’s website as well as its 2010-2011 annual report (the first year it has been made publicly available). However, the ECB response fails to address the real question regarding the interaction between central and private sector bankers.The following section looks at some basic characteristics of the group – who they are, what they do, who funds them and who represents them – and compares the results to the limited information on the G30 provided by the ECB in their opinion document.

Leadership and members

The ECB opinion correctly states that the G30 is ‘composed of high-level representatives of the private and public sectors’ and academics, but fails to convey the real nature of the group. Further investigation answers the important questions of  who the private sector members are, who can claim leadership of the organisation, and what relationship the central bankers have with the private financial sector. In other words: whose interests does the organisation represent?

Of the 32 current regular members, 12 work for private financial institutions: Jacob Frenkel (JPMorgan Chase), Geoffrey Bell (Geoffrey Bell and Associates), Domingo Cavallo (CFC Associates), E. Gerald Corrigan (Goldman Sachs), Guillermo de la Dehesa Romero (Grupo Santander), Roger W. Ferguson (TIAA-CREF), Arminio Fraga Neto, (Gavesa Investimentos), Gerd Häusler (Bayerische Landesbank), Guillermo Ortíz (Grupo Financiero Banorte), Raghuram Rajan (BankItau-Unibanco), David Walker (Morgan Stanley), and Axel A. Weber (UBS). Taken as a group, these people wield significant power in the financial markets.

Except for a few academics, the rest are central bankers. But it is also important to add that many of these are known to be bankers who have passed through ‘the revolving door’ from the private sector to the public sector or vice versa. At the moment six other public sector members have had substantial involvement with private financial institutions, including Mario Draghi (Goldman Sachs), Mark Carney (Goldman Sachs), William C. Dudley (Goldman Sachs), Phillip Hildebrand (Moore Capital, Vontobel Group, Union Bancaire Privée), Lord Adair Turner (Merrill Lynch Europe, Standard Chartered Bank) and Ernesto Zedillo (Alcoa, Procter & Gamble, Credit Suisse). They belong to a particular brand of central banker, one who is as comfortable in the private sector as the public sector, with intimate knowledge of private sector banking interests and previous working relationships with many of the private bankers they now consort with in the G30.

Finally, not all G30 members are equal. This is marginally touched upon in the opinion of the ECB, but not developed further. Major decisions regarding leadership, membership and policy are taken by the Board of Trustees and the ‘officers’ of the G30. Inside this select group, five of the eight members work for the private financial sector21. In other words, private bankers dominate decision making and policy choice within the G30.

Representation of G30

The domination of the G30 by private bankers becomes even clearer when the political representation of G30 is investigated, i.e. who represents the group in public and in what way.

Once a study is ready to be published, there is a question as to whose name (or names) appears on it. A glance through the reports mentioned in the table above reveals an interesting dynamic. While representatives from the private sector endorse three of the studies, the report, “Financial reform: a framework for financial stability”, was less straightforward. While most members from financial corporations participated, they found it necessary to stress that they – unusually –  only endorsed the report “in their individual capacities”22.

What this shows is that the private bankers in the group see themselves as representatives of their banks, unless otherwise stated. This fact is sometimes revealed in public, as when a key figure in the Group of Thirty, Jacob Frenkel, left the insurance company AIG in late 2009, and his new employer JPMorgan announced that from then on he would be their man in the G30: “He will represent JPMorgan Chase at the Group of Thirty (G30), the International Monetary Fund (IMF), Institute of International Finance (IIF), and other organizations,”23 the company wrote in a press release.

So where does this leave the central bankers in the G30? Can they really be associated with what ends up as political advice signed off by some of the biggest financial corporations in the world?  Surely central bankers must find themselves in an uncomfortable position when they get involved this directly with representatives from the banks they are supposed to supervise or regulate?

At the moment, most of the central bankers put their name on key studies produced by the G30 but stress that they do so only “in their individual capacities”. This, for instance, was done by the then President of the ECB Jean-Claude Trichet, when the G30 issued its report on the IMF in 200824. Considering the role of the IMF in the economies of many EU member states today, such a report is highly political. To have central bankers, and the head of the European Central Bank in particular, act in this way in their 'individual capacities' is striking, given that it is impossible for the president of the bank to avoid identification with the ECB. Also, nowhere in the ethics framework of the ECB does it state that the president, acting as an individual rather than as president, exempts him from its rules25.

Due to the ECB’s standing as a public bank and the need to protect the reputation of the bank, being President of the ECB should not be combined with the endorsement of policy documents that are written mainly by representatives of large financial corporations, even if there is a formal disclaimer. And in practice, this fine balance is impossible to manage in the G30. Large sections of the press, significantly, fail to notice the subtle reservations made by central bankers. When the report on the IMF was published, it was  received by the press as a G30 publication, and as such as a document supported by all members26. The press also tended to see Jacob Frenkel as the spokesperson for the organisation and many quoted him on the key message: that there was a need to strengthen the IMF by reducing the size of the board, and give the board more powers. The Times quoted him as saying that the IMF was "not complacent, but it was not forceful enough"27. "There are challenges to the IMF's legitimacy, its authority and its effectiveness," Mr Frenkel said”.

With this key report full of policy recommendations, signed by central bankers “in their personal capacity”, including Jean Claude Trichet, President of the ECB, how it is presented and by whom is of major significance. The essence of the report is explained to the press by the group’s spokesperson, Jacob Frenkel, and the fact that Trichet only signed “in his individual capacity” is lost on the press. This means a private sector spokesperson is perceived as acting in the name of the ECB in public.

This is not an exceptional anecdote. Jacob Frenkel frequently acts as spokesperson for the G3028; he is often quoted in the press as if his views represented the views of the G30; and he takes part in seminars and conferences on behalf of the organisation29.

The activities

The G30 tends to base its work on major studies conducted by internal working groups, usually chaired by a steering committee. For the past four years, the G30 has undertaken four major studies on key issues regarding international financial regulation.

Examining the way in which these studies are produced and published is important in understanding the nature of the G30.
In its opinion, the ECB claims the G30 is a research institute with no political bias. But investigations by CEO and others show the studies are intended to produce political conclusions that have subsequently been used to shape the international regulatory framework by G30 members. This can partly be seen by the way its work on major studies is organised. As the list in the table shows, the key drivers of the studies, i.e. those on the steering committee or similar, are predominantly members from the private financial sector.

Title and year of publicationSteering committee or similar
“The structure of financial supervision” (2008)Paul Volcker (G30), Roger Ferguson (TIAA-CREF), Jacob Frenkel (AIG), Richard Debs (Morgan Stanley), Geoffrey Bell (Geoffrey Bell & co.), Arminio Fraga-Neto (Gavea Investimentos), E. Gerald Corrigan (Goldman Sachs), Gerd Häusler (Lazard International), Andrew Crockett (JPMorgan Chase), John Heimann (Financial Stability Institute), Jacques de Larosière (BNP Paribas), Stuart Mackintosh (G30)
“Reform of the International Monetary Fund” (2009)Chairman: Jacob Frenkel (AIG). Regular members: Stanley Fischer (Bank of Israel), Arminio Fraga Neto (Gavesa Investimentos), Peter B. Kenen (professor), Guillermo Ortíz (Banco de México), Stuart Mackintosh (G30).
“Financial reform: a framework for financial stability” (2009)Paul Volcker (G30), Arminio Fraga Neto (Gavesa Investimentos), Tommaso Padoa-Schippoa (Promontory Financial Group), Stephen Thieke (RiskMetrics)
“Enhancing financial stability and resilience” (2010)Chair: Roger Ferguson (TIAA-CREF), members: the whole membership of G30


The ECB opinion mentions funding of the G30 in passing – stating that it is supported by “various sources” - but fails to ask if it could pose a problem for the Bank's president and his involvement. One area of concern is the overlap between funders and the banks and investments funds represented in the G30.

Total contributions are not disclosed, but 45 of the 79 financial contributors are financial firms or banking lobby groups. This includes almost all the financial corporations which have either present or former employees in the G30. All of the members who have any sort of private financial sector background, except Geoffrey Bell, Axel Weber, Lord Adair Turner and Domingo Cavallo, enjoy the financial backing of present or former employers (or in the case of Guillermo de la Dehesa Romero from a lobby association to which his company belongs) in the private financial sector.

The G30’s dependence on funding from these sources is another indication of its true nature: an initiative promoted by and dependent on the private financial sector30.

The true nature of the G30

The G30 is not an organisation that regularly appears in the media, but many journalists who write on financial issues regard the group as  more than a think tank. During the public debate around derivatives regulation in the nineties, it was was often referred to simply as “a lobby group”31, or a “pressure group”32,  while others used more opaque terms like “a high powered outfit”33. The ECB's opinion presents an image of the G30 that, (to paraphrase a comment from the ECB on CEO’s complaint) is based on “partial/incomplete information about the very nature of the G30”34. As this briefing shows, the organisation displays all the characteristics of a lobby group: it is funded by private financial corporations; it is dominated largely by representatives of the same corporations; its public figures are mostly people representing financial corporations; its objective is to formulate policy and influence financial regulation; and historically it is known to have taken positions in the interests of those same financial corporations.

3. Do ECB professional ethics rules allow Mario Draghi’s G30 membership?

There is no doubt that Mario Draghi is an active member of the G30. This has been made clear by the interventions from the ECB in the case. So the ethics rules are relevant. Given the evidence available on the G30 and the ECB's own ethics framework, there appears to be a clear breach of the rules on conflict of interest by allowing the most important central banker in Europe to be a member of the G30. With the tasks entrusted to the ECB directly impacting the economic interests of private banks, it is crucial to make sure the ECB president is not unduly influenced by people representing vested interests. The Banks own ethics rules include many articles on ‘conflict-of-interest’ and on the preservation of the independence from industry groups and others, but the ECB is failing to uphold them. The Bank’s response to charges of contravening its rules has, to date, been unconvincing35.

The Bank makes three comments that deserve mention:

In its first comment it claims membership of G30 is “necessary for the proper execution of the ECB’s mandate” that the President has exchanges with other people in the financial sector. It points to several articles in the ethics rules to back up its case. However, while these articles do allow for interaction with others in the financial sector, their real purpose is in emphasising the necessity to take precautions, for instance by investigating thoroughly the kind of work done by the G30, and specifying limits to the President’s room for manoeuvre. And as it stands, the ECB has taken no such precautions. Also, the ECB assumes in its response that the question is whether the President can attend events, which it is not. It is whether there is a risk to the principle of independence and if conflicts of interest can arise. The ECB has not addressed this issue at all.

In its second comment, it claims “the G30 is not an interest group” and refers to an article in the ethics rules for the Governing Council36. But the article gives no definition of an interest group. On the other hand it does stress that when meeting with interest groups, the approach must be “compatible with their independence as members of the Governing Council and the principle of integrity.” The ECB has given no indication that it has assessed this compatibility.

In its third comment the Bank flatly claims there is no conflict of interest at play, that there is no advantage for Draghi, his family or relatives: “The ECB President’s membership… does not provide him with ‘any potenitial advantage for himself, his family, his other relatives or circle of friends and acquaintances’. Such membership is therefore, by definition, not liable to give rise to any private or personal interest, and even less to any conflict, or appearance of conflict, of such interests.” But this opinion is unsubstantiated, not backed up by evidence, and ignores the professional conflict of interest, real or potential. It assumes that the definition of conflicts of interest is a narrow one, confined to personal money matters, which it is not.

The question is not whether Draghi earns money from his work with the G30 – which has never been claimed – but that the membership could have significance for his work as President, and the likelihood of such a scenario is clearly covered by the rules. Identification of a conflict of interest can, according to the rules, be based on, for instance, assumed loyalty to an organisation, and a factual conflict of interest does not have to be proven. It suffices that there is a risk.

ECB ignores important questions

The ECB opinion does address some of the claims presented by CEO on breaches of the ethics regulations, albeit unsatisfactorily. However, the opinion ignores the majority of them, leaving numerous questions unanswered:

- The claim that the Bank has failed “to explore potential threats to the independence of the ECB” and failed to “secure the integrity and reputation of the ECB” – both included in the ethics rules - is ignored in its response.

- The claim that the Bank has a responsibility to explore whether participation at G30 meetings is problematic, is ignored. This is despite the fact that the rules stress that particular prudence must be shown with regard to individual invitations. Also, in cases like this, the ethics officer of the Bank must be consulted, which has not happened – as admitted by the bank at an early stage37.

- The claim that the Bank fails “to avoid potential conflicts of interest arising from Mr Draghi’s membership”, is ignored in the response from the ECB, presumably because no precautionary measures have been taken.

- The ECB has also ignored requests from the EU Ombudsman to comment on two separate international documents on ethical conduct and how it complies with them, in particular on conflicts of interest38.

How the Bank justifies active membership

The basic argument for Mario Draghi’s continued membership of the group is for him to stay informed and to inform others on the policy of the ECB. However, there are numerous ways to stay informed. Seminars regularly take place, and the ECB itself organises conferences which would enable Mario Draghi to both stay informed and flag the positions of the ECB. This also contradicts the previous reason for membership given by the ECB to CEO, when the Bank claimed that Draghi's participation in the G30 “is undertaken in his personal capacity, upon invitation”39, an inconsistency which implies the ECB does not consider this a serious matter.

Had the ECB provided a thorough and consistent argument for the necessity of Mario Draghi to stay with the group, and had it published key documents that support its case, it might have been able to plausibly claim that it took the matter seriously. However, after a year-long investigation from CEO involving numerous correspondence with ECB, the information offered has been of limited value and amounts to what can be learnt in a few minutes from the G30’s website. Under such circumstances, it should not come as a surprise to the ECB, that its assurance that when at meetings, the President “is bound by the principle of independence and the duty of professional secrecy”, provides no comfort.

4. Conclusion: Draghi to leave the G30 and the ECB to improve handling of potential conflicts of interest

At a time of Europe-wide financial crisis and the ECB adopting an increasingly powerful role in tackling the crisis through changes to banking regulation, it is of explicit public interest that the leadership of the ECB in general, and President Mario Draghi in particular, be beyond all suspicion of being unduly influenced by financial lobby groups.

However, the publicly available evidence presented in this briefing on the President’s membership of the G30 reinforces existing suspicions of conflict of interest. He is an active member of an influential group dominated by major players on financial markets that has been shown to influence key political decisions on financial regulation over the past two decades.

For as long as Draghi remains a member of the G30, the risk of undue influence from the Group remains also. This threatens to affect decisions on European banking regulation (eg. by easing the pressure on big banks) or lending policy of the Bank (eg. by adopting generous conditions for loans to big financial institutions). Over the past few years it’s been made clear to the public just how expensive public financial support for banks can be. With 4,5 trillion euros to banks in support schemes in the European Union, plus another trillion euros in loans on favourable conditions, banks are at the heart of the troubles of European states. As a consequence, the public has a right to demand that any risk of undue influence is removed instantly. Also, such undue influence would be in direct conflict with the ECB's own ethics rules, and undermine the Banks's claims to independence, and its claims to be acting in the public interest would be undermined. One would expect such actions to be viewed by the Bank and the wider European public as unacceptable.

The current example of such unacceptable behaviour is not an isolated incident, but representative of a broader problem. Mario Draghi’s presence in the Group of Thirty highlights the dangerous yet common culture where the line between between private banks and public decision makers is blurred. Such blurring has paved the way for past and present financial disasters40

The questions raised in this case are not new to the Bank. Since its founding in 1998, ethical rules have been discussed and adopted to safeguard the Bank’s reputation and its independence, and to protect it from conflicts of interest.

Yet despite having these rules in place, the position taken by the ECB in response to the evidence presented suggests a disregard for its own rules and the principles that underpin them. In light of the Bank's inability to examine cases of potential ethical breaches, despite their serious implication for the Bank, its President and the European economy as a whole, there is public interest case to be made for the EU Ombudsman to intervene to ensure the rules are respected by the ECB. Without drastic improvements in its internal procedures, it is difficult to see how the Bank will avoid the reputational and real damages that such cases present.

The first step needed, though, is for Draghi to withdraw from the G30. In view of the available evidence, the likely conclusion of the EU Ombudsman investigation is for Draghi to leave the G30. While his exit would not fundamentally alter the close relationship between public officials and private financial interests, it would represent an important first step towards adopting a much-needed new approach to the ECB’s relationship with the private financial sector, based on an ‘arms length principle’.


CEO's response to the European Central Bank can be accessed here.

  • 1. The complaint can be read at
    The key documents from the case can be seen here: (links at the bottom of the page).
  • 2. Letter from Vitor Constancio, Vice President of the European Central Bank, to the EU Ombudsman, 29. August 2012. To the extent that details are left out in this background briefing, they can be found in this original response.
  • 3. See more on the G30’s website:
  • 4. The following examples of the work of the G30 owes a lot to a dissertation on the G30 published recently. Eleni Tsingou; “Club model politics and global financial governance: the case of the G30”, University of Amsterdam, May 2012.
  • 5. Group of Thirty: ”Derivatives: Practices and Principles”, 1993,
  • 6. Australian Financial Review, 24. February 1994.
  • 7. Tsingou, page 135.
  • 8. Tsingou, page 146.
  • 9. Tsingou, page 139.
  • 10. The Independent, 10. October 1993.
  • 11. Ranjit Lall; ”Reforming global banking rules – Back to the future?”, paper prepared for a seminar at DIIS, 18. May 2010, page 24 ff.,
  • 12. G30; “Global institutions, national supervision and systemic risk”, 1997.
  • 13. Australian Financial Review, 14. May 1996.
  • 14. Tsingou, page 172.
  • 15. Financial Times, 7. September 1994.
  • 16. Tsingou, page 169.
  • 17. Ibid.
  • 18. Tsingou, page 2.
  • 19. Tsingou, page 14.
  • 20. Tsingou, page 27.
  • 21. Some see the membership of acclaimed economist Paul Krugman as a highly significant proof that the G30 has nothing to do with financial lobbying, including Paul Krugman himself. We disagree for all the reasons listed in this background briefing.
  • 22. G30; “Financial reform: a framework for financial stability”, 2009, page 11-12,
  • 23. JPMorgan, press release, December 2009,
  • 24. G30; “Reform of the International Monetary Fund”, 2009, page 12,

  • 25. The ethics framework of the ECB:
  • 26. Reuters, 6. October 2009: wrote: “The G30 suggested the Fund create a new governing council to oversee the IMF's executive board and to structure itself in a way that gave big emerging powers more say. This could mean greater political involvement for the Group of 20 leading developed and emerging economic powers.”
  • 27. The Times, 6. October 2009.
  • 28. Random examples include an interview to CNN on the 6th of October 2008 on the financial crisis, and the following words of optimism, uttered to the Jerusalem Post 27. May 2008; “G30 Chairman Jacob Frenkel, a former governor of the Bank of Israel, compared the effect of oil prices today to the oil crisis of the 1970s, when world economies entered into a period of severe economic hardship. Today, he said, the flexibility of world economies, buttressed by sound monetary policies, are keeping economies in good condition despite the runs on the commodity markets.” At the time Frenkel was Vice Chairman of AIG.
  • 29. For instance, at a meeting on the 16th of September 2010 organised by the Council of Foreign Relations in the US, Frenkel was introduced as a spokesperson for JPMorgan Chase and as the Chairman of the G30.
  • 30. As for Mario Draghi, he responded with surprise when a journalist mentioned to him recently, that Goldman Sachs is among the funders of the G30.
  • 31. Australian Financial Review, 31. August 1995.
  • 32. Evening Standard, 4. December 2000.
  • 33. The Observer, 31. January 2010.
  • 34. Wording from the ECB’s opinion on CEO’s complaint.
  • 35. The following is a very brief version of our arguments on the ethics rules. For a more detailed version with references, please consult the formal response to the ECB – see the link elsewhere on this page.
  • 36. Article 3.7 of the Code of Conduct for the members of the Governing Council
  • 37. Letter from the ECB to Corporate Europe Observatory, 8. March 2012.
  • 38. OECD’s Recommendation of the Council on guidelines for managing conflict of interest in the public service, and the Council of Europe’s Recommendation no. R 10 of the Committee of Ministers to Member States on codes of conduct for public officials.
  • 39. Letter from the ECB Press and Information Division, 25. March 2012.
  • 40. On the role of the financial lobby in the US in the run up to the financial crisis in 2008 see Wall Street Watch, ”Sold out. How Wall Street and Washington Betrayed America”, 2009,

    On the role of the financial lobby in the EU see ALTER-EU, “A captive Commission. The role of the financial industry in shaping EU regulation”, 2009,


Very fine job! Thank you, I
Joaquín Arriola

Very fine job! Thank you, I'll use it extensively in my analysis.
Just add to the report, the extremely "macho" character of the G30 group.

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