Donald Trump’s attempt to dismiss Federal Reserve Board member Lisa Cook has, unsurprisingly, attracted a great deal of attention. This is hardly surprising, as many commentators have pointed out that this is the first time in the Fed’s history that such a thing has happened, and it is widely regarded as unprecedented pressure on the central bank. After all, President Trump’s previous attacks on the Fed and its chairman, Jerome Powell, are also unprecedented in democratic countries. So what about the possibility of dismissing members of central bank management?
From a general point of view, it is right that no one is completely irremovable. At the same time, it is also quite logical that the person who appoints someone can also dismiss them. It is more difficult to define the circumstances under which this can happen if the strong independence of the central bank is to be maintained.
In the case of the United States, the law allows for removal “…removed for cause by the President.” However, the law does not specify what this cause is, and the current dispute, which is likely to end up in the Supreme Court, will set an important precedent for the future. At this point, it is difficult to judge, as we do not know to what extent Lisa Cook’s allegations will be proven and to what extent the courts will consider them serious enough to lead to her removal.
It may be interesting to compare this with the European “model.” The central banks of the European Union are part of the European System of Central Banks, and the legal definition of their powers is therefore very similar, including the possibility of dismissal. The appointment mechanisms vary from country to country, but this is not particularly relevant to our consideration – the only difference is who appoints or dismisses them. However, the essence of a possible dismissal is defined in the same way in the legislation.
The Czech National Bank Act stipulates that: “A member of the Bank Board may be dismissed from office only if he or she no longer meets the conditions required for the performance of his or her duties or has committed serious misconduct.” Similar to the US, where no specific (valid) “reason” for dismissal is specified, neither EU legislation nor the legislation of individual states defines “serious misconduct” in any exhaustive manner, and it therefore remains a matter of specific assessment. A European specificity is that the dismissed governor may appeal directly to the Court of Justice of the EU, or such an appeal may be submitted to the Court of Justice by the Governing Council of the ECB.
Unlike in the US, we in Europe already have experience with pressure to dismiss, and even attempts to dismiss. I am aware of three cases, all of which are different and all of which are very interesting. The oldest case was the resignation of German governor Ernst Welteke. As a speaker at an event organized by a regulated financial institution, he had the hotel paid for himself and his family, totaling €7,600. This was considered an unreasonable benefit by the media, as he should not have accepted any gifts from a regulated entity. Welteke ultimately acknowledged his mistake, paid the hotel bill himself, and decided to resign.
The case of Italian governor Antonio Fazio was completely different. He was accused of influencing the takeover of an Italian bank, discriminating against a foreign bidder. He too ultimately decided to resign, although the path to resignation was not the quickest and involved a number of picturesque Italian elements that we do not have space to describe here. It should be added, however, that a few years later, Fazio was indeed sentenced to four years in prison and a fine of €1.5 million in this case.
Both of the above cases ended with the governors’ resignations, but there is one experience with an attempt at dismissal. This is the relatively recent case of Latvian Governor Ilmars Rimševičs from 2019. He was accused of corruption by the Latvian authorities and suspended from his position as governor. The suspension was apparently chosen in order to await the decision of the EU Court of Justice before making a final decision on dismissal. However, it appears from the court’s ruling that the Latvian authorities did not provide any evidence to support the allegations, and the EU Court of Justice annulled the decision of the national authorities. Rimševičs therefore completed his term of office as normal.