Europe, European Central Bank, Macroeconomics and macroeconomic policy, monetary policy, CASE Reports, CASE Network Studies and Analyses

Interaction between monetary policy and bank regulation: lessons for the ECB

The European Central Bank (ECB) recently became engaged in macro-prudential policies and the micro-prudential supervision of the largest Euro area banks. These new tasks should help complete financial integration, and make the Euro area more resilient to financial instability risks. However, the multiplicity of mandates and instruments involves a risk of their inconsistency which could compromise the ECB’s core price-stability mandate as well as its independence. The experience of central banks during the recent global financial crisis confirms that such risks are not purely hypothetical.