Draghi Summons Banking Know-How for ECB Posts as Role Shifts
Mario Draghi, President of the European Central Bank, speaks at the Brookings... Read More
As the European Central Bank assumes the mantle of euro-area financial supervisor, its president has just staffed two key monetary-policy posts with non-ECB experts on how lenders function in the economy. The appointments mark a trend of turning to outsiders as the 16-year-old institution struggles to meet its changing responsibilities with existing staff.
“People like Draghi have much more interest in how markets and supervision affect monetary policy than the old school,” said Anatoli Annenkov, senior European economist at Societe Generale SA in London. “It’s a reflection of the problems that the ECB is facing.”
Sergio Nicoletti Altimari, 51, a Bank of Italy financial-markets official who worked closely with Draghi during the latter’s time as governor there, will become director general for macroprudential policy and financial stability from Jan. 1.
Luc Laeven, a Belgian economist at the International Monetary Fund with a track record of analyzing financial crises, will become director general for research by March.
The appointments were confirmed by the ECB’s Governing Council last week. Both men declined to comment.
Risk Monitoring
Draghi is seeking people who can handle the new powers the ECB gained when it became the euro-area banking supervisor on Nov. 4. About 900 new staff have been hired so far who will be dedicated to oversight, and the role also brings the authority to promote financial stability throughout the economy with measures such as higher capital buffers or increased risk-weightings on lenders’ assets.This macroprudential policy was born out of the gradual recognition that the financial system isn’t always rational, and so someone needs to be watching for the emergence of risks that could escalate and broaden.
ECB Vice President Vitor Constancio said in Chicago on Nov. 7 that the post-crisis work to repair Europe’s banking system is not yet done. He said the use of macroprudential tools to ensure financial stability is needed more in Europe than in the U.S., and shadow-banking oversight still needs to be addressed.
Nicoletti Altimari previously worked at the ECB from 1998 to 2006, when he rose to deputy head of monetary-policy strategy. From 2006 to 2008 he was an economic adviser to Italian Economy Minister Tommaso Padoa-Schioppa, a former ECB Executive Board member and an early advocate of pan-European banking supervision.
In his new job, replacing another Bank of Italy veteran, Ignazio Angeloni, who has joined the board of the Single Supervisory Mechanism, he’ll oversee the ECB’s activities in devising and implementing macroprudential tools.
Policy Conflict
He’ll have to work in close co-operation with national authorities, who retain most of the power in this field, and he’ll have to strike a balance between the ECB’s traditional monetary-policy remit and the new supervisory role. While the two arms will generally operate independently, the enactment of macroprudential measures will need closer coordination, as he has previously noted.“There are complementarities between monetary and macroprudential policies, but also potential conflict,” Nicoletti Altimari wrote in a 2012 Bank of Italy research paper. “Monetary policy needs to take financial stability into account.”
Laeven is currently lead economist at the IMF’s research department in Washington, and teaches finance at Tilburg University in the Netherlands. He started his career as an analyst at ABN Amro Bank NV and has published extensively on the link between monetary policy and bank behavior.
He’ll oversee an ECB division that produced more than 110 research papers this year alone. The position has been vacant since the appointment of Frank Smets as Draghi’s counselor in November 2013.
New Brains
“Traditional bank regulation, which focuses on individual bank risk, may be insufficient for large banks,” Laeven wrote in an IMF discussion paper in May. “Additional regulation, based on systemic risk considerations, is needed to deal with the externalities of distress of large banks.”The economics of how the banking sector as a whole affects monetary policy is still being worked out at the ECB and the European Systemic Risk Board, the Frankfurt-based panel that watches for imbalances building up in the economy.
That’s reflected both in abstract policy and in the need for new brains to figure it out, according to Francesco Papadia, chairman of Prime Collateralised Securities and a former director general of the ECB’s market operations.
“It’s not totally clear yet how the ECB will organize the relationship between financial stability, bank supervision and the ESRB,” Papadia said “There’s of course a very strong trend to bring new people from outside.”
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