Download publication

Policy Contribution

The European Central Bank in the age of banking union

This Policy Contribution was prepared for the European Parliament's 'Monetary Dialogue with the President of the European Central Bank Mario Draghi. During the crisis the European Central Bank’s roles have been greatly extended beyond its price stability mandate. In addition to the primary objective of price stability and the secondary objective of supporting EU economic policies, we identify ten new tasks related to monetary policy and financial stability.

By: and Date: October 2, 2013 Topic: European Macroeconomics & Governance

During the crisis the European Central Bank’s roles have been greatly extended beyond its price stability mandate. In addition to the primary objective of price stability and the secondary objective of supporting EU economic policies, we identify ten new tasks related to monetary policy and financial stability.

We argue that there are three main constraints on monetary policy: fiscal dominance, financial repercussions and regional divergences. By assessing the ECB’s tasks in light of these constraints, we highlight a number of synergies between these tasks and the ECB’s primary mandate of price stability.

But we highlight major conflicts of interest related to the ECB’s participation in financial assistance programmes. We also underline that the ECB’s government bond purchasing programmes have introduced the concept of ‘monetary policy under conditionality’, which involves major dilemmas. A solution would be a major change towards a US-style system, in which state public debts are small, there are no federal bail-outs for states, the central bank does not purchase state debt and banks do not hold state debt. Such a change is unrealistic in the foreseeable future.

View comments
Read article More on this topic More by this author

Blog Post

Building a stable european deposit insurance scheme

Deposit insurance, like any insurance scheme, raises moral hazard concerns. Such concerns arising from European deposit insurance can be alleviated through a country-specific component in the risk-based premium for deposit insurance and limits on sovereign bond exposures on bank balance sheets. This column argues, however, that proposals to maintain national compartments in a new European Deposit Insurance Scheme are self-defeating, as such compartments can be destabilising in times of crisis.

By: Dirk Schoenmaker Topic: Finance & Financial Regulation Date: April 19, 2018
Read article More on this topic More by this author

Blog Post

Latvia’s money laundering scandal

Latvia’s third largest bank ABLV sought emergency liquidity from the ECB and eventually voted to start a process of voluntary liquidation, after being accused by US authorities of large-scale money laundering and having failed to produce a survival plan. What does it mean for the ECB?

By: Silvia Merler Topic: Finance & Financial Regulation Date: April 9, 2018
Read article More on this topic More by this author

Opinion

The Lesser Evil for the Eurozone

For three decades, the consensus within the European Commission and the European Central Bank on the need for market reforms and sound public finances has been strong enough to overcome opposition in small countries and outlast procrastination in large ones. Today, however, the Eurozone playing field has become a battleground.

By: Jean Pisani-Ferry Topic: Finance & Financial Regulation Date: April 4, 2018
Read article More by this author

Podcast

Podcast

Director's Cut: Developing deposit insurance in Europe

In this week’s Director’s Cut of ‘The Sound of Economics’ podcast, Bruegel director Guntram Wolff talks with Nicolas Véron, senior fellow at Bruegel, about the implementation of a European Deposit Insurance Scheme (EDIS), one of the three pillars needed for the completion of banking union.

By: The Sound of Economics Topic: European Macroeconomics & Governance, Finance & Financial Regulation Date: April 3, 2018
Read article Download PDF More by this author

External Publication

European Parliament

Cash outflows in crisis scenarios: do liquidity requirements and reporting obligations give the SRB sufficient time to react?

Bank failures have multiple causes though they are typically precipitated by a rapidly unfolding funding crisis. The European Union’s new prudential liquidity requirements offer some safeguards against risky funding models, but will not prevent such scenarios. The speed of events seen in the 2017 resolution of a Spanish bank offers a number of lessons for the further strengthening of the resolution framework within the euro area, in particular in terms of inter-agency coordination, the use of payments moratoria and funding of the resolution process.

By: Alexander Lehmann Topic: European Parliament, Finance & Financial Regulation, Testimonies Date: March 28, 2018
Read article

Blog Post

Breaking the Stalemate on European Deposit Insurance

Many EU-level reports have highlighted a European Deposit Insurance Scheme (EDIS) as a necessary component of banking union, but none of these options has met sufficient consensus among euro-area countries. The authors of this blog propose to end the deadlock with an EDIS design that is institutionally integrated but financed in a way that is differentiated across countries.

By: Isabel Schnabel and Nicolas Véron Topic: European Macroeconomics & Governance, Finance & Financial Regulation Date: March 5, 2018
Read article More on this topic

Blog Post

Don’t put the blame on me: How different countries blamed different actors for the Eurozone crisis

Why did the eurozone have such difficulties coming to terms with its own shortcomings? The authors believe they have found part of the answer, through an algorithm-based cross-country media analysis.

By: Henrik Müller, Giuseppe Porcaro and Gerret von Nordheim Topic: European Macroeconomics & Governance Date: March 1, 2018
Read article More on this topic More by this author

Opinion

The EU’s Seven-Year Budget Itch

On February 23, EU members began negotiations on the bloc's multiannual financial framework for 2021-2027. But, with all countries focusing on net balances – how much they receive minus how much they pay – will the composition of spending bear any relation to the EU’s stated priorities?

By: Jean Pisani-Ferry Topic: European Macroeconomics & Governance Date: March 1, 2018
Read article Download PDF More by this author

External Publication

European Parliament

Note on the interactions between payment systems and monetary policy

This paper analyses the interactions between, on one hand, monetary policy and financial stability responsibilities of the ECB and, on the other hand, Post-Trading-Financial Market Infrastructures. In the author's opinion, payment Systems are critical for monetary policy while Central Counter Parties (CCPs) are critical for financial stability. However, in stressed conditions CCPs can be the source of risks also for monetary policy.

By: Francesco Papadia Topic: European Parliament, Finance & Financial Regulation, Testimonies Date: February 26, 2018
Read article More on this topic More by this author

Blog Post

The exchange rate and inflation in the euro-area: words following facts

The reduced references in the speeches of the President and Vice-president of the ECB to exchange rate changes in assessing inflation developments correspond to a decreased pass-through from the exchange rate to inflation. So, as it should be, words have followed facts

By: Francesco Papadia Topic: European Macroeconomics & Governance Date: February 16, 2018
Read article Download PDF More on this topic

Policy Contribution

Tales from a crisis: diverging narratives of the euro area

Who gets the blame for the crisis? How did narratives of the crisis develop since 2007? The authors of this paper tried to identify the key crisis-related topics in articles from four opinion-forming newspapers in the largest euro-area countries.

By: Henrik Müller, Giuseppe Porcaro and Gerret von Nordheim Topic: European Macroeconomics & Governance Date: February 15, 2018
Read article Download PDF More on this topic More by this author

Policy Contribution

Risk reduction through Europe’s distressed debt market

The resolution of non-performing loans (NPLs), a stock of roughly €870 billion in the EU banking industry, is central to the recovery of Europe’s banking sector and the restructuring of the excess debt owed by private sector borrowers. Could the development of distressed debt markets be a new element of capital market deepening in Europe?

By: Alexander Lehmann Topic: Finance & Financial Regulation Date: January 18, 2018
Load more posts