SOME OF THE PROS AND CONS OF CENTRAL BANKING SUPERVISION BY THE ECB

• Published in: CESifo forum 2012, Vol.13 (4), p.40
• Main Author: Sell, Friedrich L
• Format: Article
• Language: English
• Subjects: Banking industry; Central banks; Comparative analysis; Deflation; Economic crisis; Eurozone; Federal Reserve monetary policy; Inflation; Interest rates; Macroeconomics; Regulation of financial institutions; Securities markets; Solvency; Supervision
• ISSN: 1615-245X; 2190-717X

If the EU follows the proposals of Internal Market Commissioner Michel Barnier, the ECB will very soon assume responsibility as the central banking supervisory authority for all, or at least several credit institutions within the eurozone. The restructuring of banking supervision within the eurozone is part of a far more sweeping overall plan for a banking union, which, in addition to supervision, also covers deposit protection, resolution funds for insolvent banks and capital requirements. This article examines some of the tasks involved in banking supervision and the supervision of compliance with capital requirements by a central bank such as the ECB. This paper will begin by looking at the question of how sensible it is for one and the same central bank to influence both interest rates and banking supervision. Secondly, it examines whether central banking supervision via the ECB could possibly throw up a new 'trilemma' for (in this case European) monetary policy. Thirdly, the paper discusses whether a central banking supervisory authority will tend to have procyclical effects (especially in terms of compliance with capital requirement regulations). Our approach to all of these questions will principally be of a macroeconomic nature. [PUB ABSTRACT]