Monetary Policy and Banking Supervision: Coordination Instead of Separation
AbstractFollowing the June 2012 European Council decision to place the âSingle Supervisory Mechanismâ (SSM) within the European Central Bank, the general presumption in the policy discussions has been that there should be âChinese wallsâ between the supervisory and monetary policy arms of the ECB. The current legislative proposal, in fact, is explicit on this account. On the contrary, however, this paper finds that there is no need to impose a strict separation between these two functions. The authors argue, in fact, that a strict separation of supervision and monetary policy is not even desirable during a financial crisis when the systemic stability of the financial system represents the biggest threat to a monetary policy that aims at price stability. In their view, the key problem hampering the ECB today is that it lacks detailed information on the state of health of the banking system, which is often highly confidential. Chinese walls would not solve this problem. Moreover, in light of the fact that the new, proposed Supervisory Board will be composed to a large extent of representatives of the same institutions that also dominate the Governing Council, the paper finds that it does not make sense to have Chinese walls between two boards with largely overlapping memberships. In addition, it recommends that some members of the Supervisory Boards should be âindependentsâ in order to reduce the tendency of supervisors to unduly delay the recognition of losses.
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Bibliographic InfoArticle provided by Ifo Institute for Economic Research at the University of Munich in its journal CESifo Forum.
Volume (Year): 13 (2012)
Issue (Month): 4 (December)
Banken; Europäische Integration; Europäische Wirtschafts- und Währungsunion; Europäische Bankenunion;
Other versions of this item:
- Gros, Daniel & Beck, Thorsten, 2012. "Monetary Policy and Banking Supervision: Coordination instead of separation," CEPS Papers 7528, Centre for European Policy Studies.
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
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- Charles Goodhart, 2000. "The Organisational Structure of Banking Supervision," FMG Special Papers sp127, Financial Markets Group.
- Goodhart, Charles & Schoenmaker, Dirk, 1995. "Should the Functions of Monetary Policy and Banking Supervision Be Separated?," Oxford Economic Papers, Oxford University Press, vol. 47(4), pages 539-60, October.
- Joe Peek & Eric S. Rosengren & Geoffrey M. B. Tootell, 1999.
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99-7, Federal Reserve Bank of Boston.
- Richard K. Abrams & Michael Taylor, 2000. "Issues in the Unification of Financial Sector Supervision," IMF Working Papers 00/213, International Monetary Fund.
- Gabriel Jimenez & Steven Ongena & Jose-Luis Peydro & Jesus Saurina, 2012. "Credit Supply and Monetary Policy: Identifying the Bank Balance-Sheet Channel with Loan Applications," American Economic Review, American Economic Association, vol. 102(5), pages 2301-26, August.
- Neyer, Ulrike & Vieten, Thomas, 2013. "Die neue europäische Bankenaufsicht: Eine kritische Würdigung," DICE Ordnungspolitische Perspektiven 45, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
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