Recep Tayyip Erdogan has championed unorthodox economic policies for years, leaving investors deeply concerned about the precarious state of Turkey’s balance sheet. This week, Türkiye’s president named a new central bank governor. Hafize Gaye Erkan’s background? Specializes in creating complex models for analyzing balance sheet risk of large financial institutions.
“Data is indisputable. Any position can be backed by the power of numbers,” the Princeton-educated former Goldman Sachs banker said in a First Republic biography of the recently defunct U.S. bank’s 2021 end-2021 Previously served as an executive of the company.
Erkann’s roots in classical mathematics stand in stark contrast to the radical economic views held by Erdogan, who has served as the fifth central bank chief since 2019. The Turkish president called interest rates the “mother of all evil” and insisted high borrowing costs caused rather than cured high inflation.
Former central bank governor Şahap Kavcıoğlu cut interest rates from 19% to 8.5% in two years, a decision that triggered a severe inflation crisis and put the lira under enormous pressure.
The central bank has also burned through about $25 billion in foreign exchange reserves this year, partly to stabilize the lira. That will leave Erkan with little wiggle room as he takes up the challenge of turning the bank around.
“I think Erkan’s job is both hard and easy,” said Hakan Kara, the central bank’s former chief economist. “It’s difficult because she inherited high inflation and an ineffective set of deregulation. Simple because she could improve markets very quickly, even by sticking to central bank fundamentals, given her predecessor’s unusually low credibility mood.”
Born in Istanbul in April 1979, Erkan’s parents, a physics and mathematics teacher and engineers, developed her quantitative skills from an early age. She learned C++, a programming language, from a neighbor who ran a software group. “I made them Turkish coffee in return, and they taught me the joys of C++ and recursive functions,” she says in her biography of the First Republic.
After graduating as valedictorian from Turkey Strait University in 2001 with a degree in Industrial Engineering, Erkan went on to earn a Ph.D. in Financial Engineering from Princeton University, where he wrote a dissertation on risk management.
The Turkish-American dual citizen then spent nearly a decade at Goldman Sachs, where she advised major financial conglomerates on stress testing their balance sheets. There, she met First Republic founder Jim Herbert, who eventually hired her in 2014 to manage the California bank’s portfolio and a key part of its risk management function.
Erkan quickly rose through the ranks at First Republic, taking on the additional role of Chief Deposit Officer in 2016. As of 2019, she was named one of the “Most Powerful Women to Watch” in the industry by American Banker. In the summer of 2021, Erkan was named co-CEO of First Republic and was seen as a leading candidate to succeed Herbert at one of the largest regional banks in the US at the time.
But her tenure at the top of the company was short and bumpy: Erkan had a series of interactions with other senior executives that were described as “toxic” in previous FT reports. She leaves the First Republic at the end of 2021.
Since then, the agency has been at the center of the biggest U.S. banking crisis since 2008. The institution faced a massive run on depositors due to rising interest rates, which eventually led to its collapse and a fire sale to JPMorgan in early May. That had some ramifications for Erkan, who had been instrumental in risk management at the bank in the years leading up to the crisis.
After leaving First Republic, Erkan served a similar term as co-CEO of New York commercial real estate firm Greystone a year later, being appointed in June 2022 and leaving in December of that year.
Now, as Turkey’s first female central bank chief, she will have a new chance to use her risk management experience as she executes what could be one of the bank’s biggest ever pivots.
Mehmet Şimşek, who was appointed finance minister last week, has vowed to return to the country’s “rational” policies. Economists and investors say that will require a sharp increase in interest rates at the central bank’s June 22 meeting, if not before.
“Information received and expectations formed so far point to a strong signal for the policy transition, and the June 22 . . . meeting is crucial for its implementation,” said Enver Erkan, chief economist at brokerage firm Dinamik Yatırım Menkul Değerler.
The job of central bank governor is sure to test Erkann’s diplomatic skills. The Turkish, English and German speaker will need to balance putting Turkey on a more sustainable policy path and attracting foreign investors while placating a president who is often impatient with traditional economic policies.
Wolfango Piccoli of consultancy Teneo said Erkan would need to “rebuild (the central bank) after years of mismanagement, purges and downgrades”. “Like most other important institutions, (banks) have lost their independence and have been hollowed out by Erdogan’s centralized drive.”
adam.samson@ft.com