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.