Monetary policy and banking supervision
Sylvester Eijffinger, Rob Nijskens 19 December 2012
Eurozone leaders agreed to transfer bank supervision to the ECB with the detail yet to be fleshed out. It is widely acknowledged that giving the ECB two tasks creates a conflict of interest. This column argues that the two functions must be separated by setting up a Supervisory Board, operating independently within the ECB, and by granting the new supervisors a solvency instrument that is independent of the interest rate.
Assigning the task of banking supervision to the ECB raises questions regarding the relationship between its primary mandate, monetary policy, and the newly attributed supervisory powers. A serious concern is that monetary policy runs the risk of no longer being independent. Therefore, it has to be ensured that the functions of supervision and monetary policy are clearly separated and independent from political control. However, monetary and financial stability are very much related and mutually reinforce each other, especially in the longer term.
EU institutions Monetary policy
ECB. banking supervision