The Governor of the Bank of Portugal, Carlos Costa, has pre-empted a report into banking supervision by criticising the Ministry of Finance for something that is far from being decided.
Deeply perturbed that his power is being eroded and the he is about to lose much of his supervisory remit, Costa says that attempts have been made to question the independence of central banks. This refers to the current debate over reforms to the supervision of banking, insurance and capital markets.
The Ministry of Finance has done no such thing and fails to understand Carlos Costa's position because nothing yet has been decided. Calling Costa’s outburst "regrettable," an official at the ministry said that any changes that may or may not be made to the Bank of Portugal’s role as financial supervisor, are subject to a review which is in its public consultation stage.
"This was never our attitude or the way in which the Finance Ministry should relate to the Bank of Portugal," said the ministry source, adding that "we hope that the governor will retract his declarations in the name of healthy institutional relationships."
What is annoying Carlos Costa is that the working group responsible for the report into the Bank of Portugal’s regulatory future is being coordinated by one of his many detractors, Carlos Tavares, who was the head of the Stock Market Regulator and, as such, ended up in a pitched battle with Costa over who was responsible for the Banco Espírito Santo misselling of investment products, shortly before the bank folded in 2014.
Now the review is completed, it must be analysed by the Parliamentary Group of the Socialist Party, so is not set in stone. The deliberations are due to continue until October 20th after which Carlos Costa may well see himself stripped of much of his power as pay-back for a generally dismal work performance, including his flawed decision-making over the BES and Banif collapses which already have cost the hard-pressed taxpayer billions of euros.
However, Carlos Costa did himself no favours by his outburst today which claimed the Treasury’s hierarchy has a common desire “to question the independence of central banks."
The report on the reform of financial supervision prepared by the working group and presented by Carlos Tavares - which is in public consultation until October 20th - advises a change in the governance model for regulating banking, insurance and capital markets by creating a Supervisory and Financial Stability Board and a Higher Financial Policy Board.
"This report is not binding, it is in public consultation, and the decision on the final model may or may not abide by some suggestions proposed in this report," according to the ministry source.
Losing power on this scale means Carlos Costa’s links with the European financial system will be diminished, rendering him impotent, alone and even more bitter.
If power is removed from the Bank of Portugal, this will be entirely Carlos Costa's fault as his tenure has been marked by indecision, poor decision and a culture of shifting blame. If he was capable of doing his job, there would be no need to strip away his responsibilities.
The Prime Minister, António Costa, is no fan but has been unable to replace the governor as the post-holder is sanctioned by Europe and the PM needs to keep Brussels and the ECB happy.
