There’s a lot of money and power at the nexus of banking and policymaking, home of the infamous revolving door and the natural habitat of people like Mike Froman, America’s new trade representative, who has shuttled back and forth between government and Citigroup and who, behind the scenes, helped pick all of Barack Obama’s initial economic team. And wherever there’s money and power, you’re sure to find turmoil. If Promontory is the big winner these days, there’s also bound to be a big loser. Let me introduce you to the IIF.
The Institute for International Finance describes itself as being “the most influential global association of financial institutions” — where by “influential” it means that it aspires to have the ability to persuade policymakers what to do. For most of its existence it was run by Charles Dallara, a former Treasury official who spent two years at JP Morgan before becoming head of the IIF in 1993. He stayed in that job for 20 years; in 2011, the last year we have numbers for, he was paid $3,955,381 for his efforts. That’s 20% of the IIF’s total payroll; the other 104 employees, between them, took home a slightly more modest, but still impressive, average of $153,870 each.
Dallara was replaced by Tim Adams, another former Treasury official — but “replaced” is not really the right word. The IIF was Dallara, and without him, it seems, the IIF is nothing. For all that it has 105 employees and prides itself on having a truly global membership, Dallara turned the IIF into what Adams calls, in a Powerpoint presentation circulated to the entire staff, a “founder-led, personality-driven” enterprise. (The presentation, entitled “An Era of Rapid Change, Repositioning and Renewal”, is essentially Adams’s buzzword-laden manifesto for keeping the IIF relevant.) Dallara was a notoriously tyrannical micro-manager; the not-so-secret of career success at the IIF was always to do everything and anything Dallara wanted, and nothing else. When Dallara left, his yes-men — and the IIF’s top execs are overwhelmingly men — had no idea how to react, and the Institute inevitably collapsed into a viper-pit of political infighting.
Already, there have been two high-profile casualties: the IIF’s long-standing chief economist, Phil Suttle, has been fired, as has its PR chief, Gary Mead. (Unsurprisingly, the IIF didn’t manage to respond to my requests for comment.) More worryingly, Bank of America (NYSE:BAC) has resigned its membership, and there seem to be questions over whether other big US banks might follow suit, with at least one of them allegedly hundreds of thousands of dollars behind on its membership fees. That’s very bad news for the IIF, which is nothing if it’s not a shop where the world’s most important policymakers can rub shoulders with senior executives of the world’s biggest banks. The IIF’s membership changes over time, but at its core is always the select global group of systemically-important financial institutions. If it’s losing the likes of BofA, it’s losing its raison d’être.
In recent years, the IIF has also become something of a ham-handed lobbying shop, to the point at which a capital-markets-friendly outlet like Euromoney will happily and openly dismiss its claims as so much self-interested claptrap. The change dates back to the global financial crisis, which caused a massive rise in demands for global financial institutions to be regulated much more assiduously. The institutions fought back, through the IIF, with 161-page report detailing the gruesome economic consequences of doing so. A taster, to take you back to the summer of 2010:
IIF Deputy Managing Director and Chief Economist Philip Suttle, who is the lead author of the new report, said the impact is not the same in each part of the world, given differences in each banking system and in the roles banks play in the broader economy. The analysis suggests that for the Euro Area a weaker recovery with real GDP some 4.3% less than otherwise might be the case and with new job creation, therefore, being potentially some 4.6 million lower over the 2011-2015 period than otherwise might be the case. The respective projections for GDP and for employment on this basis for the United States would respectively be 2.6% and 4.6 million. For Japan the projected numbers on this same scenario would be 1.9% and around 0.5 million jobs to 2015.
Suttle, here, was essentially saying that if the Basel Committee and others actually did their jobs and regulated the banks to the point at which they were significantly less likely to blow up the global economy, then the cost of doing so would be trillions of dollars and millions of jobs. The banks don’t like to be reminded of this report, partly because it was based on ludicrous assumptions, and partly because the reforms ended up happening anyway, and as a result the banks now need to claim, at least in public, that they’re fully supportive of their wise regulators.
As a result, Suttle got thrown under the bus — although the report came from the institution as a whole, and had the sign-off of a very high-powered board, including Dallara. The problem is that the IIF is still trying to have it both ways. Even as it tries to butter up policymakers, especially in central banks, it continues to talk about the enormous cost of proposed policies. And if the press doesn’t take its pronouncements seriously, policymakers are even less impressed: within serious institutions like the New York Fed, for instance, the IIF has become little more than a punchline to an unfunny joke.
Charles Dallara might have been, as I described him last year, an “amiable buffoon” — but at least he was an amiable buffoon with access. Since his departure to a Swiss private-equity shop, the IIF has not only been leaderless and rudderless; it has also been completely out of the loop on key issues such as the treatment of deposits in Cyprus. In a world where the financial services lobby has never been more sophisticated, the IIF feels like an anachronism, and Adams’s attempts to reinvent it are doomed to fail. If he were starting up a new association that would be hard enough, but given the quantity of entrenched dysfunction at the IIF, turning it around to be, in his words, “faster, shorter, sharper, relevant” is simply not going to happen. Adams may or may not have a clear vision of where he wants to go — his presentation is pretty vague and fluffy — but even if he does know where he’s going, there’s really no way of getting there from here.
The IIF won’t be missed, at least by anybody who isn’t a banker with a fondness for rubber chicken. But its fate should be salutary for any institution with a powerful chief executive. If that chief departs without some very clear succession planning in place, it can be extremely difficult for the institution to survive.