Central banking and financial political power: An investigation into the European Central Bank

Abstract

In the aftermath of the 2008 financial crisis, there has been a major scholarly revival of the topic of financial political power and a refocus on questions concerning democracy, elites, and inequality. Nevertheless, there remains a dearth in the literature regarding the precise nature of the political relationship between the financial sector and central banks. This is problematic given the sharp rise in institutional prominence enjoyed by central bank officials in the post crisis era and their fundamental importance in the governance of financial markets. As a corrective, this paper develops a provisional analytical framework through which the power dynamics between the financial sector and central banks can be fruitfully explored, specifically with reference to the European Central Bank. It does so by identifying four mechanisms through which financial actors potentially influence the policy choices of the European Central Bank – revolving doors, closed policy circles, capital flight/disinvestment, Too Big to Fail – and illustrates their operation empirically in the context of the bank’s organizational functioning and post crisis interventions. The paper illustrates how financial actors enjoy systematic advantages in the domain of central bank policymaking and provides significant evidence that the European Central Bank has been a key ally of the financial sector throughout the Eurozone crisis. The paper calls for a more extensive examination by scholars of the financial sector-central bank relationship as a means to clarify the precise scope of, and limitations to, contemporary financial political power.

The Routledge Handbook of Critical Finance Studies

“…Yet, financial regulation reforms did not meaningfully limit the problematic financial activities that led to the crisis Thiemann et al, 2018). The first research results on the role played by central banks in these reforms show that, far from advocating stricter rules, they have advocated further financialization of the banking sector (Conti-Brown, 2016: 160;Kalaitzake, 2019). We argue that financial structural power partly explains this regulatory neglect.…”

“…Arguably, the liquidity offered to insolvent institutions in the early stages of the crisis and the systemic unconventional monetary tools implemented later on confirmed that, when central banks are faced with a trade-off between short-term financial stability and long-term financial stability, they tend to favor the former ( Jacobs & King, 2016;Kalaitzake, 2019). In turn, these interventions transformed central banks into "bad banks," to the extent that they swapped liquidity against risky assets previously owned by commercial banks (Cour-Thimann, 2013).…”

Risk Entanglement in the Finance-State Nexus: The Case of Systemic and Political Risk

“…Thus, existing research discusses to what extent central banks maintain their pre-crisis mantra of market neutrality and price stability as the yardstick of their ex-post crisis mode, but ultimately act increasingly politically (van't Klooster and Fontan, 2019 ). This is flanked by influential financial sector interests (Kalaitzake, 2019 ; Walter and Wansleben, 2020 ). As Braun ( 2020 ) points out, while focusing repos and the (re)introduction of “simple, transparent, and standardized” securitisation practices as pillars of the current ECB monetary policy, financial actors do not only exercise instrumental power through lobbying, but also infrastructural power.…”

“…Economic sociology and political economy investigate these crisis-driven relations predominantly with regard to processes of financialization (van der Zwan, 2014 ) affecting state practices (Braun et al, 2018 ), public debt management (Woodruff, 2016 ; Fastenrath et al, 2017 ), central banks as finance-state hybrids (Kalaitzake, 2019 ; Braun, 2020 ; Walter and Wansleben, 2020 ), the supervision and regulation of finance (Epstein and Rhodes, 2016b ; Hardie and Macartney, 2016 ), and statist issued financial assets (Gabor, 2016 ; Gabor and Ban, 2016 ), to name some examples. In a nutshell, this research shows that the logics and interests of financial markets continue to proliferate and influence statehood, even in an era of crisis and enduring calls for a “strong state.”…”

European Union financial integration, a geography perspective

“…Additionally, the EU's variable geometry interacts with regional and national institutional differences, while firms, markets, and regulations rarely Europeanize in tandem within and across contexts (Aalbers, ). Actors such as the European Central Bank (ECB; Kalaitzake, ), the international Basel‐based financial governance committees (Bieri, ), and the OECD and IMF (Abdelal, ) also impact the scalar division of labour. The result is a territorially variegated pattern (Peck & Theodore, ) where the exact combination of spatial effects of the EU scale differ from place to place depending how scales are imbricated in situ (Brenner, ).…”