Monetary Policy and Banking Supervision: Coordination instead of separation
AbstractFollowing the June 2012 European Council decision to place the ‘Single Supervisory Mechanism’ (SSM) within the European Central Bank, the general presumption in the policy discussions has been that there should be ‘Chinese walls’ 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 “independents” in order to reduce the tendency of supervisors to unduly delay the recognition of losses.
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Bibliographic InfoPaper provided by Centre for European Policy Studies in its series CEPS Papers with number 7528.
Length: 10 pages
Date of creation: Dec 2012
Date of revision:
Other versions of this item:
- Thorsten Beck & Daniel Gros, 2012. "Monetary Policy and Banking Supervision: Coordination Instead of Separation," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 13(4), pages 33-39, December.
- NEP-ALL-2013-06-16 (All new papers)
- NEP-CBA-2013-06-16 (Central Banking)
- NEP-MON-2013-06-16 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Joe Peek & Eric S. Rosengren & Geoffrey M. B. Tootell, 1999.
"Is bank supervision central to central banking?,"
99-7, Federal Reserve Bank of Boston.
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- repec:ner:euiflo:urn:hdl:1814/24214 is not listed on IDEAS
- 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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