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Faraway or close? Supervisors and central bankers

Speech by Ignazio Angeloni, Member of the Supervisory Board of the ECB, Halle Institute for Economic Research (IWH), Halle, 2 February 2017

1. Introduction[1]

It is a pleasure and an honour to speak at Halle, one of Germany’s prestigious academic institutions. One thing that makes Halle remarkable as a centre of knowledge is its location. Many great intellectual contributions given over the centuries in many fields – philosophy, mathematics, music and even theology – originate from places close to here. Some of them have become building blocks of our European – indeed, our global – culture.

The topic I shall address today is close to my professional concern – European banking supervision – and has also been the object of considerable academic debate. In keeping with the spirit of the surroundings, sometimes these debates sound rather philosophical to me, if not theological. I refer to the relation between banking supervision and central banking, and in particular to the appropriate degree of proximity between them. Should the two functions, and the people who perform them, be kept separate, with each side pursuing its goal without much communication; or should the functions be connected and ideally placed in a single institution? Either way, how should the interactions between them be addressed? What criteria are relevant in settling these questions? [2]

This topic has acquired new relevance in Europe with the launch of the banking union. In 2012 the European leaders decided to create a new pan-European supervisory authority in the European Central Bank (ECB), the institution responsible for monetary policy in the euro area. The decision was not uncontroversial at the time, and the controversy did not die down thereafter. Still today, authoritative voices suggest that placing supervision in a central bank puts both functions at risk, and that the EU Treaty should be changed as soon as possible in order to separate supervision from the ECB.

My interest in these issues comes from experience. I was trained as an economist and most of my professional life was spent in monetary policy areas of central banks that were, directly or indirectly, also connected to banking supervision and financial stability. In 2012, when the ECB started preparing for its new responsibility, my focus shifted fully to banking supervision. Over a period of 30 years or so, I have had the opportunity to observe how teams involved in the two functions operate, and the different mindset they bring to similar problems. In one of my favourite Wim Wenders’ movies, angels fly above their fellow humans, enjoying a broader vision, but missing the colours of the landscape they observe. Likewise, central bankers, even those who consider the bank intermediation process an essential link of monetary transmission, often overlook the myriad of operational, legal and human factors within each banking institution that make that process function or fail. Supervisors, on their side, tend to underestimate the implications of prudential decisions for the economy at large. This different perspective explains why they sometimes regard each other with some suspicion, but is also the reason, as I shall argue, why their interaction is so fruitful.

2. Synergies and trade-offs

Let me start by revisiting some of the conflicting arguments that have been used in this debate, in the light of the ECB experience. Let’s look first at the origin of central banks. The historical perspective helps highlight certain fundamental features that are hidden behind daily practices. Economic historians – especially Charles Goodhart and Michael Bordo[3] – have offered a clear and consistent picture of how central banking originated and developed over the last few centuries.

Whether they evolved from private institutions that gradually acquired a public function, as in Italy or Sweden, or were created ad hoc to address market failures or satisfy the demands of the sovereign, as in the United States or France, central banks have always performed the role of “banks of banks”; institutions specialised in extending credit to other institutions that are themselves lenders.[4] Central bank credit can be ordinary, when liquidity is offered on a routine basis in orderly market conditions, or of last resort, when given to banks that cannot, for a variety of reasons, obtain credit from their peers.[5] This characteristic of central banks as “indirect” credit providers has been regarded by some as an inherent reason to link banking supervision and central banks. Tommaso Padoa-Schioppa, a founding father of the euro, used an imaginative metaphor, describing banking supervision as part of the “genetic code” of central banks.[6] To perform their role as lenders, central banks need inside information on banks in order to assess their soundness and monitor their behaviour. The inherent fragility of bank balance sheets, where liquid liabilities finance long-term risky exposures, compounds the problem. Although, in principle, this information can flow across separate institutions, with the help of appropriate agreements, practical experience shows that involving central banks in banking supervision is an effective way to secure this vital informational and monitoring requirement.[7]

This argument may have become more important recently. Since the 1970s, central banks have become much more independent, for good reasons. Budgetary independence is a cornerstone of statutory independence. For a lender, there can be no budgetary soundness without in-depth knowledge of its borrowers. Moreover, the ECB, like most central banks, can lend only to solvent banks. The ECB supervisory arm conducts the solvency assessment for the central bank, using supervisory data. This link has strengthened with the financial crisis; the volume of lending of last resort has increased, and the distinction between solvent and insolvent banks may have become more complex.[8]

But the lessons from recent history run deeper than this. Recent interpretations emphasise the role played, at the origin of the crisis, by the fragmentation of knowledge that prevailed among market participants, regulators and academics, giving rise to a phenomenon that has been called “the silo effect”[9]. Mental silos are deemed partly responsible for the collective failure to understand early on the fragilities that were building up in the global financial system. Silo mentality arises when teams involved in related functions operate independently, each focusing on separate goals and not sharing information. Institutions structured in silos have trouble “connecting the dots” and grasping the big picture from limited information. The risk of silos is pervasive in all organisations; sectoral teams are gratified and rewarded if working in isolation, because the value of cooperation is difficult to measure. In turbulent market conditions, however, supervisory knowledge is particularly valuable if combined with market expertise and macroeconomic information, leading to an overall assessment. Integrating banking supervision in the central bank facilitates this combination. To reap the benefits in full, internal, actively enforced rules on communication and teamwork must be in place. It is essential that the right incentives come from the top.

All this links up, to my mind, with what is known as the macroprudential approach to financial regulation[10]. This approach requires augmenting traditional microprudential supervision with explicit consideration of the interrelations across banks and the transmission channels to and from the economy as a whole. What becomes relevant is the “systemic” relevance and vulnerability of each bank in a broader economic context. This approach obviously requires merging information from supervisors, macroeconomists, monetary policy experts, as well as market and payments specialists, all of whom are typically found among central bank staff.

Economists have also approached the problem from another angle: that of optimal policy with multiple instruments and targets. This approach calls into question the interconnections between monetary and financial policies. On the one hand, monetary policy influences bank leverage and resilience to shocks, by affecting the banks’ risk-taking incentives and the tightness of their borrowing constraints.[11] On the other, prudential policies matter for the implementation and the transmission of monetary policy.[12] What is the policy architecture that best accounts for these interconnections? It has been shown that, in presence of frictions and constraints in policy implementation, policy coordination yields superior outcomes relative to uncooperative (Nash) equilibria.[13] These results, however, often overlook the complexity of putting coordination schemes into practice, especially when policy is conducted by separate institutions.

I should mention in passing that supervisory information also benefits monetary policy in normal times, when central banks operate primarily through routine open market operations. A fruitful line of research developed in the 1990s and early 2000s used individual supervisory data to analyse the monetary policy transmission mechanism by observing the lending behaviour of banks following monetary policy changes.[14] Federal Reserve economists have also found that confidential supervisory information helps obtain better estimates of key variables that are used in monetary policy decisions.[15]

Let me now move to the opposite side of the debate, to the arguments that have been raised against integrating supervision within central banks. They belong mainly to two categories: reputational risks and conflicts of interests.[16]

Reputational risks occur when supervisory failures negatively affect the credibility of monetary policy. This risk affects monetary policy in particular, because supervisory failures, real or perceived, are quick to materialise and are more visible, and perhaps more defaming, than those occurring in the exercise of monetary policy. This argument is indeed quite relevant, as demonstrated by the numerous instances of central bankers whose reputation has suffered from supervisory incidents. One should also consider that the supervisory process requires a high number of specific decisions on individual institutions, requiring specialised information and constant attention to detail. This activity does not fit easily in the business agenda of the same body that decides on monetary policy, whose collective brain is more inclined to synthesis and to focus on broad economic trends. These arguments lead, I think, to the conclusion that, while preserving the synergies I have alluded to, one should try to distinguish as clearly as possible the decision-making responsibilities of the two areas.

The second dimension of risk refers to conflicts of interest. This risk potentially affects both functions to the same degree. Economists speak of “financial dominance” when the central bank deviates from its price stability goal to pursue other objectives in the financial sphere. The monetary policy decision-maker involved in supervision as well may use its instruments to promote supervisory goals, to the point of endangering price stability.[17] Conversely, supervisors may become excessively lenient regarding weak banks that are important counterparties of central bank operations, in order to prevent or conceal losses in the central bank’s balance sheet.

While the logic of all this is undeniable, in my opinion the practical consequences of conflicts of interest between supervision and monetary policy in modern central banks have been overestimated: arguments in this regard at times sound more philosophical than real. Modern central banks are bound by statutes to pursue their goal – price stability – and to use specific instruments. The goal of price stability is easily measured and central banks are held publicly and institutionally accountable for it. Admittedly, for banking supervisors independence and accountability frameworks are more recent and less universally accepted, partly due to the difficulty of measuring the policy goal – “safety and soundness” of banking institutions, or “financial stability”. But in recent years progress has been made; in 2012 the Basel Committee on Banking Supervision issued new “core principles”, refining the concepts of supervisory independence, transparency and accountability, and supervisory authorities around the world have gradually conformed to them.[18] The regulation establishing the Single Supervisory Mechanism (SSM) indicates the goals of the ECB supervision and prescribes a strong independence and accountability framework.[19] By its very nature, the private scope of a supervisory assessment may often lead to less transparent outcomes compared to monetary policy decisions. Yet, if the accountability and communication frameworks are strong enough, it is hard to think that either the central bank or the supervisor integrated within it could deviate significantly, and for long, from their statutory goals. Therefore the risk in question can and should be managed, or at least mitigated, by proper institutional design, in particular by imposing, disclosing and enforcing a clear distinction of objectives and instruments.[20]

3. International experiences

It is useful now to look at recent developments around the world in supervisory institutions and in their relations with central banks.

In this evolution, the recent crisis was a watershed. Beforehand, the prevailing view supported a separation between supervision and central banking. After the crisis, the trend has been reversed and the desirability of a separation has been challenged, leading to increased involvement of central banks in supervision in many countries.[21] In the United States, the Dodd-Frank Act significantly extended the Federal Reserve’s supervisory powers, though these are still shared with other federal and state agencies.[22] In the United Kingdom, the pre-existing Financial Services Authority was dismantled and its powers re-attributed to the Bank of England, with the creation under its roof of the Prudential Regulation Authority.[23] In Europe, this process culminated with the establishment of the SSM.

In the euro area, most central banks are involved in supervision in one way or the other. Some of them conduct specific supervisory tasks but the main responsibility lies with an independent agency, as in Germany and Austria, while in other cases the central bank is fully in charge. It should be noted that in the euro area national supervisory decisions are limited to day-to-day supervision of “less significant” (smaller) institutions. Supervisory decisions regarding “significant” banks, amounting to over 80 percent of the euro area banking sector, lie with the ECB in the context of the SSM.

Internationally, the current landscape is quite similar. Among the central banks belonging to the Basel committee, more than half are involved in banking supervision or the supervision of the entire financial sector. Examples include the United States, Singapore, Brazil or South Africa. On the other hand, there are also examples where the prudential supervisor – often responsible in this case for the entire financial sector – is located outside the central bank, as in Australia, Canada and Japan.

4. Supervision within the ECB

The question of whether the upcoming ECB should also be involved in supervision was discussed in the 1980s, when the Maastricht Treaty was drafted. The controversy resulted in what is now Article 127(6) of the EU Treaty, in legal jargon the “enabling clause”. This clause allows the European Council to confer upon the ECB “specific supervisory tasks concerning policies relating to the prudential supervision of credit institutions and other financial institutions with the exception of insurance undertakings”. This clause was used in 2012 to place supervision in the ECB.

Having participated in the set-up of the SSM from the inside, I have no doubt that the ECB, with its well-established expertise and reputation, contributed decisively to the successful launch of the reform. The long wave of such benefit is still lasting today.

In the SSM Regulation[24], particular care is given to ensuring a clear distinction of roles and of structures. Article 25 introduces a principle of separation[25], establishing that neither of the two ECB policy functions should prevail on the other. Such a principle has been further developed in a number of internal rules[26] disciplining the interaction between the monetary policy and supervisory functions. The ECB is accountable to the European Parliament for the ways in which internal separation is ensured. The Commission conducts a review of the ECB supervision every three years, covering this aspect as well. Finally, the SSM Regulation explicitly mentions the possibility of future institutional evolutions, including Treaty changes that may allow a more radical separation of the two functions.[27]

Within the ECB, the Supervisory Board (SB) is in charge of planning and executing the supervisory tasks, and is supported by five business areas, totalling around 900 staff.[28] The organogram ensures that staff involved in supervisory tasks are always different from those carrying out monetary policy tasks. Staff members involved in supervision functionally report to the SB Chair, while the ECB Executive Board remains responsible for all organisational, human resources and administrative decisions for the organisation as a whole.

Separation is also underpinned by rules that safeguard autonomous decision-making. Each SB member is fully independent in their position, including the national members, who in the SB are bound to a European mandate and not subject to national instructions. However, because of the unicity of decision-making within the ECB, established by the Treaty, the adoption of supervisory decisions needs to follow a “non-objection procedure”: draft decisions prepared by the Supervisory Board are deemed adopted unless the Governing Council objects within ten working days (or less in case of urgency). The Governing Council itself operates differently in two functions, with separate meetings and agendas. The SB and the Governing Council meet together when analysing macroprudential issues. The collaboration between the SB and the Governing Council is working well; the mediation panel provided for in the SSM Regulation to resolve conflicts between the two has so far never been convened.

Information sharing is governed by internal rules. The Executive Board is involved when most sensitive information is to be exchanged. Resource efficiency is also enhanced by the establishment of shared services, i.e. business areas which provide technical support to both functions.

Before concluding let me mention two issues, one relating to supervisory independence, the second to the role of the shared services.

As I mentioned already, in spite of considerable recent progress, supervisory independence is not yet fully established and recognised at international level. In the ECB, the relevant provisions are quite strong. The independence of its supervisors is protected both by the SSM Regulation (in Article 19) and by the Treaty provisions relating to the ECB as a whole; according to the prevailing legal interpretation, the latter also apply to the ECB’s supervision.[29] The SSM Regulation fully protects the SB and its members, but affords less than full protection to the non-central bank national supervisory authorities which participate in the SSM with a crucial supporting technical role. There are grounds to infer from this that separating supervision from the ECB may take away the stronger protection granted to the ECB by the Treaty and undermine part of its independence.

Regarding the shared services, I should mention that recently the ECB’s internal arrangements have attracted the attention of European Court of Auditors. The Court, which the Treaty holds responsible for checking the operational efficiency of the ECB management,[30] has questioned in particular the choice of sharing services between both the central bank and the supervisory function, on the grounds that this may endanger the separation principle. This concern should not, however, be overstated. Services in the areas of human resources, IT, legal and so on, do not pertain to either function but only provide basic technical support. They ensure efficient delivery of services by minimising duplication of work. Since they do not affect the contents of policy, they do not put separation at risk. [31] [32]

5. Conclusions

In conclusion, let me set out the core messages I think we should draw. Georg Cantor, the Halle mathematician who invented the theory of sets, would perhaps have noted that my conclusions intersect somewhat with one another, but their union covers all the arguments I have discussed.

  1. First, the questions I have discussed and the related decisions need to be approached with a good deal of pragmatism. No institutional arrangement is perfect; all are path-dependent. The initial conditions must be taken into account. The ECB arrangements have worked well since the start and have improved further over time. Changes should be undertaken only if the benefits clearly outweigh the costs and the risks involved. A pragmatist ante litteram, Voltaire put it rightly when he said: “Le mieux est l’ennemi du bien”.
  2. Second, in my reading, the extensive economic, legal and historical literature on the pros and cons of different institutional arrangements overwhelmingly, though not unanimously, support the superiority of models where banking supervision is integrated in the central bank, with appropriate provisions safeguarding the integrity of both functions.
  3. Third, the need to prevent the formation of mental and organisational silos should be taken seriously into account. Proper conditions for the performance of a single, SSM-wide macroprudential supervision should also be ensured. For both purposes, free and spontaneous interaction of staff is to be encouraged. Contrary to what one might think in the digital age, physical proximity is important. For example, the 2.5 kilometres distance that today separates the ECB’s main headquarters from the building where supervisors are located is already an upper bound from the point of view of facilitating daily interactions.
  4. Fourth, for the reasons I have discussed, the risks stemming from an imperfect distinction between the two decision-making levels can be significant. This highlights the need to distinguish as clearly as possible the prerogatives and responsibilities of each. In the ECB, the unicity of decision-making implies a degree of involvement of the Governing Council in supervisory decisions, through the non-objection procedure. Full autonomous supervisory decisions in the ECB can only be obtained by changing the Treaty. If undertaken at some stage, such a step may also require a strengthening of the governance and secretarial arrangements supporting supervisory decisions.
  5. Fifth, and finally, whatever avenue is chosen, continued emphasis should be placed on independence and accountability frameworks. Transparent communication is important for this as well. Being recently designed and comparatively flexible, both the ECB and the SSM are well placed to be at the forefront of best practice in this respect. More than anything else, this can help ensure that the goals, obligations and constraints of the two policy functions in the ECB are well understood and accepted.

Thank you for your attention.

  1. I am grateful to many colleagues of the ECB who have contributed with discussions and suggestions. Neither they, nor the ECB itself, are responsible for any of the views expressed here.
  2. The literature on whether or not it is desirable to combine central banking and supervision is quite extensive. For a review, see for example Masciandaro, D. and Quintyn, M.W. (2015), “The governance of financial supervision: recent developments”, Journal of Economic Surveys, 30(5). Frequently quoted references include Goodhart, C.A.E. and Schoenmaker, D. (1992), “Institutional separation between supervisory and monetary agencies”, Giorn. Econ. 9; Goodhart, C.A.E. and Schoenmaker, D. (1995), “Should the functions of monetary policy and banking supervision be separated?”, Oxford Economic Papers, 47(4), pp. 539-560, and Di Giorgio, G. and Di Noia, C. (1999), “Should Banking Supervision and Monetary Policy Tasks be Given to Different Agencies?”, International Finance, 2 (3).
  3. See Goodhart, C.A.E. (1988), The Evolution of Central Banks, MIT Press; Bordo, M. (2007), “A brief history of central banks”, Federal Reserve bank of Cleveland, and Bordo, M. (1990), “The lender of last resort: alternative views and historical experience”, Economic Review.
  4. Their monopoly position in this area may, in the future, be eroded by the development of electronic money.
  5. See Praet, P. (2016), “The ECB and its role as lender of last resort during the crisis”, speech given at the Committee on Capital Markets Regulation conference on The lender of last resort – an international perspective, Washington DC, February.
  6. Padoa-Schioppa, T. (2003), “Central banks and financial stability: exploring a land in between”, in Gaspar, V., Hartmann, P. and Sleijpen, O. (eds.),  The transformation of the European financial system. Second ECB Central banking conference, Frankfurt am Main, European Central Bank, pp. 269-310. 
  7. These arguments were developed in detail with specific reference to the ECB by Beck, G. and Gros, D., “Monetary policy and banking supervision: coordination instead of separation” and Whelan, K., “Should monetary policy be separated from banking supervision?”, both in Monetary Policy and Banking Supervision, Monetary Dialogue December 2012, European Parliament. A recent empirical study by the World Bank, covering also developing countries, finds that including supervision in the central bank mitigated the likelihood of banking crises; see Melecky, M. and Podpiera, A.M. (2015), “Placing bank supervision in the central bank; implications for financial stability based on evidence from the global crisis”, Policy Research Working Paper 7320, the World Bank.
  8. The intermediation role of the ECB as direct liquidity provider to banks has significantly increased in the crisis. The willingness to provide elastic credit to individual banks through Eurosystem credit operations increases potential counterparty risk, although the collateral framework protected the Eurosystem effectively. Moreover, the nexus between the sovereign crisis and the banking sector meant that, in some cases, entire banking sectors were faced with a protracted funding shortfall which, if left unaddressed, would have turned into a solvency crisis. Both developments augmented the usefulness of combining monetary policy and supervision. In its solvency assessment provided both for establishing counterparty status for Eurosystem credit operations and for the purpose of granting Emergency Liquidity Assistance (ELA), the ECB supervision considers credit entities to be in compliance with the Common Equity Tier 1 ratio at 4.5%, the total capital ratio at 8%, and the Tier 1 capital ratio at 6%. This assessment is not dynamic and does not reflect macroprudential elements. For further information, see the ECB President’s Introductory statement to the press conference, 16 July 2015 as well as the ECB’s ELA procedures, published in 2013 and available on the ECB’s website (
  9. See Tett, G. (2015), The silo effect, Simon and Schuster.
  10. See for example Hanson, S.G., Kashyap, A.K. and Stein, J.C. (2011), “A Macroprudential Approach to Financial Regulation”, Journal of Economic Perspectives, 25(1), pp. 3-28. The need to have a closer interaction between microprudential and macroprudential supervision is emphasised in Brunnermeier, M.K., Crockett, A., Goodhart, C.A., Persaud, A. and Shin, H.S. (2009), “The fundamental principles of financial regulation”, (Vol. 11), London: Centre for Economic Policy Research.
  11. See, among others, Altunbas, Y., Gambacorta, L. and Marques-Ibanez, D. (2010), “Does monetary policy affects banks’ risk-taking”, BIS working paper 298; Angeloni, I. and Faia, E. (2013), “Capital regulation and monetary policy with fragile banks”, Journal of Monetary Economics, 60, pp. 311-324.
  12. See, with regard to liquidity, Bindseil, U. (2013), “Liquidity regulation and monetary policy implementation”, Monthly Bulletin, ECB, Frankfurt am Main, April, and with regard to capital, Cecchetti, S. and Li, L. (2008), “Do capital adequacy requirements matter for monetary policy?”, Economic Inquiry, 46(4), pp. 643-659.
  13. See for example De Paoli, B. and Paustian, M., “Coordinating monetary and macro-prudential policies”, Journal of Money, Credit and Banking, forthcoming.
  14. See for example Kashyap, A.K. and Stein, J.C. (2000), “What Do a Million Observations on Banks Say about the Transmission of Monetary Policy?”, American Economic Review 90.3, June, pp. 407-428. For an application to Europe, see Angeloni, I., Kasyap, A.K. and Mojon, B. (eds.), Monetary policy transmission in the euro area, Cambridge University Press, 2003.
  15. See Peek, J., Rosengren, E. and Tootell, G. (1999), “Is Banking Supervision Central to Central Banking?”, Quarterly Journal of Economics vol. 114, n°2, and Peek, J., Rosengren, E. and Tootell, G. (2001), “Synergies between Bank Supervision and Monetary Policy Implications for the Design of Bank Regulatory Structure”, in Mishkin, F. (ed.), Prudential Supervision: What Works and What Doesn't, University of Chicago Press, Chicago.
  16. On this side of the debate, one can count a few academics and policy-makers. See for example Eijffinger, S., Monetary policy and banking supervision?”, in Monetary Policy and Banking Supervision, Monetary Dialogue December 2012, European Parliament. With reference to the ECB, separation has recently been advocated by J. Weidmann (see “Weidmann: ECB can't solve every problem”, interview with Süddeutsche Zeitung on 19 September 2016) and A. Dombret (see “There are conflicts of interest between monetary policy and banking supervision”, interview with Frankfurter Allgemeine Zeitung on 3 November 2016). Both interviews are available on the Deutsche Bundesbank’s website ( More favourable views on the integration model have been presented by B. Cœuré (see “Monetary Policy and Banking Supervision”, speech by Benoît Cœuré, Member of the Executive Board of the ECB, Goethe University, Frankfurt, 7 February 2013, available on the ECB’s website ( and D. Nouy (see “A year of the SSM – résumé and outlook”, speech by Danièle Nouy, Chair of the Supervisory Board of the Single Supervisory Mechanism, at the ESE Conference 2015, Prague 1 October 2015, available on the ECB’s banking supervision website (
  17. Financial dominance often materialises as a time inconsistency problem. Frank Smets has argued that in a unified structure the central bank may have “ex post incentives to inflate away some of the debt overhang associated with financial crises”. See Smets, F. (2014), “Financial Stability and Monetary Policy: How Closely Interlinked?”, International Journal of Central Banking.
  18. See the Basel Committee on Banking Supervision’s Core Principles for Effective Banking Supervision, September 2012.
  19. See especially Article 1 (on the goals), Article 19 (on independence) and Article 20 (on accountability and reporting).
  20. For a recent survey of the empirical research on this front, see Rutkowski, F. and Schnabel, I. (2016), “Should Banking Supervision and Monetary Policy be Separated?”, working paper, University of Bonn.
  21. See Taylor, M. (2014), “Regulatory reform after the financial crisis”, in Hui Huang, R. and Schoenmaker, D., Institutional Structure of Financial Regulation: Theories and International Experiences, Hoboken: Routledge.
  22. The Federal Reserve supervises several kinds of financial institutions: bank and financial holding companies, state-chartered banks that are members of the Federal Reserve System; various international banking operations. The Act also gives the Federal Reserve authority to subject systemically important non-bank financial institutions, bank holding companies with over $50 billion in assets, and systemically important financial market intermediaries such as clearing firms to heightened supervisory standards.
  23. This change was preceded by formal reviews of the performance of the UK financial architecture during the crisis; see House of Commons Treasury Committee 2008: “The run on the Rock” Fifth Report of Session 2007–08 Volume I Report, together with formal minutes Ordered by The House of Commons to be printed 24 January 2008, and Financial Services Authority, 2009, The Turner Review. A Regulatory Response to the Global Banking Crisis, FSA, London, March.
  24. Council Regulation (EU) No. 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions (OJ L 287, 29.10.2013, p. 63).
  25. Literally the principle reads as follows: “The ECB shall carry out the tasks conferred on it by [the SSM Regulation] without prejudice to and separately from its tasks relating to monetary policy and any other tasks, [and] the tasks conferred on the ECB by [the SSM Regulation] shall neither interfere with, nor be determined by, its tasks relating to monetary policy”. See
  26. See “Decision of the ECB of 17 September 2014 on the implementation of separation between the monetary policy and supervision functions of the European Central Bank”, ECB Decision 2014/39, available on the ECB’s website (
  27. Article 32n and Recital 85 of the SSM Regulation.
  28. This relates solely to supervisors; including supporting staff – mainly in the areas of human resources, IT, audit, legal, statistics and communication – the total rises to around 1,300.
  29. See Zilioli, C. (2016), “The independence of the ECB and its new supervisory competences”, in Ritleng, D., Independence and Legitimacy in the Institutional System of the European Union, Oxford University Press.
  30. Article 27.2 of the ECB Statute, reflected also in article 20.4 of the SSM Regulation.
  31. As made clear in the ECB Decision on Separation (Recital 11 and Article 3(4)), shared services can be established only to the extent their existence does not trigger conflicts of interest and they do not intervene in the definition of the respective policy responsibilities. Their existence is fully in line with the principle of separation and with the overall rationale behind having both policy functions within the same institution.
  32. The ECA has also focused on the key question of budgetary independence, since the Chair of the SB does not decide on the budget per se. However, it is important to note that the SB Chair is consulted on the budget, a mechanism which addresses the ECA’s concerns on this front.

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