The architecture of supervision and prudential policy

The architecture of supervision is defined by the allocation of supervisory powers to different policy institutions. This allocation has implications for policy conduct and for the economic and financial environment in which the policies are implemented. This article addresses three main issues related to the architecture of supervision. First, it analyses the implications arising from an integrated model of the functions of central banking and prudential supervision. Afterwards, the consequences of centralised supervision, as opposed to national supervision are also examined. The implications are also broadly discussed in the euro area context and in relation to the design of the Single Supervisory Mechanism (SSM). Next, the article discusses the design for macroprudential policy in the EU and in the euro area. The last section is devoted to the prudential response in Europe during the Covid-19 crisis. Key successes and shortcomings of the current architecture for supervision in Europe are then analysed.