In 2018, during the buildup to an early November vote on the European Central Bank’s (ECB) next top supervisor, an influential member of the European Parliament implied that the candidacy of Sharon Donnery, deputy governor of Ireland’s central bank, owed its strength to Donnery’s gender as opposed to her qualifications. Whether this pronouncement contributed to Donnery’s subsequent loss to her male competitor is disputable. What the remark did achieve, however, was resurfacing the discussion about the relevance of gender balance in regional financial governance – a discussion that continued gaining prominence with Christine Lagarde’s appointment as the president of the ECB.
In 2016, the European Banking Authority (EBA) – a regulatory body of the European System of Financial Supervision (ESFS) responsible for overseeing the “integrity, efficiency, and orderly functioning” of financial institutions across the European Union – published a report on the diversity practices of European credit rating agencies and investment firms. The only ESFS document to address gender inclusivity since the System’s creation in 2011, the report scolded private financial institutions for the disproportionately low number of women on management boards. However, the EBA’s own track record in gender diversity has only contributed to the invisibility of half of Europe’s population in the financial sector.
Women comprise only 27 percent of the membership of the EBA’s governing, appeal, and advisory bodies, a modest increase of 5 percent from 2018. This includes the Board of Supervisors, which makes all policy decisions of the EBA, and the Management Board, responsible for the administration of the EBA’s operations. This figure even applies to bodies mandated to promote and protect diversity. The Banking Stakeholder Group, a major EBA advisory group valuable due to the “variety of perspectives and expertise that its diverse membership brings to the table,” is less inclusive than its mission suggests: a mere eight of its thirty members are women.
As EBA officials themselves stated in the 2016 diversity report, homogenous decision-making entities are susceptible to groupthink and herd behavior. In a major regulatory authority like the EBA, these two phenomena can make it harder to spot shortcomings in governance and risk management practices that drive financial systems into crises, as they did in 2008. Indeed, a recent International Monetary Fund (IMF) study of 115 countries found that a lower number of women in financial oversight institutions is associated with a poorer quality of supervision and overall banking stability. Despite its potential benefits, gender parity in financial supervision remains the least well-studied and well-documented dimension of financial inclusion globally, the study noted.
However, whether the 2008 crisis could have been avoided if Lehman Brothers had been Lehman Sisters is not the question ESFS officials should be focusing on. More important, the current composition of the EBA boards hampers the implementation of the European Commission’s post-2008 crisis strategic agenda, within which gender equality is not only a driver for more effective decision-making, but also an affirmation of fundamental EU values.
Addressing gender imbalances in ESFS decision-making bodies can be challenging due to idiosyncratic board selection processes. For example, the EBA’s male-dominated Board of Supervisors comprises the heads of the national banking supervisors from each of the 28 EU member states. The EBA, as well as the broader ESFS network, has no direct control over the gender composition of governmental financial sector regulators, which oftentimes fall under the authority of national central banks. There, an even grimmer picture of women’s representation emerges: men constitute 79 percent of members of key decision-making bodies and 96 percent of central bank governors in the European Union.
Nonetheless, the EBA can still contribute to achieving a gender-equal Europe while avoiding infringements on national interests and prerogatives. Building on the experience of the European Central Bank in introducing an explicit diversity agenda, the EBA can set long-overdue gender targets for the Banking Stakeholder Group. Since the group consists of interested parties outside of national authorities, the EBA can influence the group’s gender composition without compromising the sovereignty of European states. The Joint Board of Appeal is another EBA body whose independent, if opaque, selection process provides an opportunity for better diversity practices. Clearly, the EBA has sufficient autonomy in appointing and approving members of some of its critical decision-making bodies. What it lacks is willingness to utilize that authority to ensure women are equally represented.
The EBA is the watchdog of the European banking sector. Its treatment of gender diversity sets a standard for financial institutions across the EU. Women’s lack of representation in authoritative oversight entities reduces the already low likelihood that gender equality will be prioritized on regional and private institutional agendas. Setting concrete gender targets for EBA decision-making bodies whose gender composition is not controlled by national authorities would be a needed step toward giving women voice in the formulation, implementation, and assessment of policies that affect both providers and receivers of services throughout Europe’s entire financial sector.
As a regulatory authority with the power to shape the gender diversity practices of thousands of financial institutions, the EBA must lead by example and demonstrate a genuine commitment to inclusivity. Until it does so, its demands to increase the visibility of women in the private sector will seem at best unconvincing, and at worst insincere.