By Tom Fairless
FRANKFURT -- The European Central Bank is being dragged into local controversies over issues ranging from banking scandals to bribery, underlining the mounting political pressures on the world's No. 2 central bank as it takes on a vastly expanded role.
Three of the ECB's 25 policy makers, a group that includes central-bank governors from 19 eurozone countries, are currently entwined in domestic investigations -- in Latvia, Slovenia and Greece -- and other top officials have faced pressure to resign.
ECB President Mario Draghi is likely to be quizzed at a news conference Thursday about alleged corruption and money laundering in Latvia, issues far removed from the bank's primary task of setting interest rates.
Since 2014, the Frankfurt-based ECB has been the eurozone's top banking supervisor, with direct oversight of around 120 of the region's biggest lenders and indirect control over thousands of others. It is also among the international monitors that oversaw the bailouts of struggling eurozone countries, including Greece, Portugal and Cyprus.
New powers to oversee the region's banks have become something of a "poisoned chalice" for the ECB, creating frictions with national authorities that retain key responsibilities in their banking sectors, said Daniel Gros, a director at the Centre for European Policy Studies, a Brussels think tank.
National governments face high hurdles to firing their central-bank chiefs under EU rules that granted a high degree of independence to the ECB. But the ECB can't obstruct investigations under national law.
The threat of national investigations effectively weakens the 19 national central-bank governors who sit on the ECB's rate-setting committee, relative to the six members of the bank's executive board, said Mr. Gros. The latter could gain influence in internal debates because they "don't have the Sword of Damocles hanging over them," he said.
The situations in Latvia, Slovenia and Greece differ from one another, but each of them risk straining and distracting the ECB, which emerged strengthened from the region's recent debt crisis even as elected politicians stumbled.
Latvia's central-bank governor Ilmars Rimsevics was recently suspended by Latvian authorities from attending meetings of the ECB's rate-setting committee in Frankfurt as a result of a Latvian investigation into whether he extorted bribes. Mr. Rimsevics denies the allegations and says there is a campaign against him orchestrated by local banks.
The probe is separate from allegations of systemic money laundering leveled by the U.S. Treasury against ABLV Bank, Latvia's third-largest bank, which is being liquidated. ABLV has said it isn't guilty of money laundering and has invested heavily in compliance systems.
Slovenia's central-bank chief Bostjan Jazbec was traveling to Frankfurt in mid-2016 when Slovenian police raided his office in the capital, Ljubljana, as part of an investigation into a 2013 overhaul of the country's banks. Mr. Jazbec and the Bank of Slovenia have denied wrongdoing.
The police seized documents and hardware, including some marked with the confidential stamp of the ECB, on whose rate-setting committee Mr. Jazbec sits.
That prompted a rebuke from Mr. Draghi, who threatened legal action for violating the ECB's legal immunities and asked the European Union's executive, the European Commission, to intervene. Slovenian authorities responded at the time that the raid was legal, and that the central bank in Slovenia had refused several requests by prosecutors to hand over documents.
Mr. Jazbec's computer was eventually returned to him, six months later, he says. But the Slovenian is frustrated at what he describes as an erosion of his authority within the central bank after his four fellow board members failed to be re-elected. He has been nominated for a new job in Brussels, with the EU's bank-resolution authority, which would entail stepping down before his term ends.
In Greece, where the ECB has a high-profile role in monitoring the country's bailouts, central-bank head Yannis Stournaras has had a running feud with members of Greece's government, led by the left-wing Syriza party, who regard him as a political enemy.
In February, the Greek parliament launched an investigation into whether Mr. Stournaras, along with senior opposition politicians, took bribes to fix drug prices. Mr. Stournaras and all the officials named in the investigation have denied wrongdoing.
In an address on Feb. 21 to the Greek parliament, Mr. Stournaras complained that anonymous witnesses had invented stories about him. Mr. Draghi has repeatedly intervened in support of Mr. Stournaras.
Central bankers in other countries have also come under pressure. Portugal's central-bank head Carlos Costa has faced fierce political attacks related to the collapse in 2014 of the lender Banco Espírito Santo, and a subsequent decision by the central bank to impose losses on bondholders. Prime Minister António Costa, who isn't related to the central-bank head, accused the central bank of irresponsibly dragging out a decision on how to compensate retail investors hurt by the collapse. The central bank has said the move was in the public interest.
"If it only takes an allegation for a governor to lose his job...inevitably [ECB governors] will be watching their backs," said Panicos Demetriades, a former governor of Cyprus' central bank.
Mr. Demetriades stepped down in 2014 -- two years into a five-year term -- following a political firestorm of criticism over his handling of the island's banking crisis the previous year.
--Todd Buell contributed to this article.
Write to Tom Fairless at email@example.com