5. The Legal Interaction in the EU Institutional Framework

The law and economics analysis of the institutions lies at the heart of ‘Institutional Economics’ which pays attention to the relationship between institutions, economics, and public policies. Institutional Economics considers the role of the law in the society as the rules frame the economic, political, and social interactions in the societal order, while economic performances are considered as strictly interdependent on the institutional arrangements set by law. On this topic, inter alia, see Drobak (2008), pp. 1–11; Williamson (2000), pp. 595–613; Posner (1993), pp. 73–87; Coase (1984), pp. 229–231; North (1990), pp. 3–11; Eggertsson (1990), pp. 59–82. For a historical survey of the Institutional Economics, see Hodgson (2004). For a critical review of the relevant literature, see Dellepiane-Avellaneda (2009), pp. 195–224; Madema and Mercuro (2006), pp. 208–283.

North (1990), p. 3.

For a quantitative analysis, see Law and Azman-Saini (2008).

Inter alia, see Drobak (1998), pp. 98–104. See also IBRD, WB, IMF (2005), p. 223.

Bini Smaghi (2007). An ever-growing scholarship exists on this relationship. For some examples, cf. La Porta, Lopez-de-Manes, Shleifer, and Vishny (2002), pp. 1147–1170; Coffee (2001), pp. 1–82.

Pistor (2013), pp. 317–318.

For details on the inherent criticalities of the financial system and their relationship with regulation, see Moloney (2014), pp. 1–8. For an overview of the specific inefficiencies and market failure in Europe, see also the Commission Staff Working Document Economic Review of the Financial Regulation Agenda accompanying the document Communication from the Commission to the European Parliament, the Council and the European Economic and Social Committee, and the Committee of the Regions—A reformed financial sector for Europe (COM(2014) 279 final).

See Karmann and Enkhzaya (2006), p. 33.

See Nijsen (2008), pp. 27–40.

For a conceptualization of policy regimes as the governing arrangements for addressing policy problems, inter alia, see May and Jochim (2013), pp. 426–452.

IMF (2013a), p. 19.

See Heath (2014), pp. 1107–1110.

For a general overview on the EU macroprudential policy agenda and its relationship to monetary policy, see Constâncio (2015).

de Larosière Report (2009), p. 15.

For an interesting overview of economic and fiscal reforms put in place by EU Member States, see Grüner (2013), No. 487.

The structural and the investment funds are funds established in the EU to support the economic, social, and territorial cohesion of the European area, as particularly laid down in Article 3 of the TEU and Article 174 of the TFEU, with the aim of generating sustainable and inclusive growth. These funds consist of the European Regional Development Fund (ERDF), the European Social Fund (ESF), the Cohesion Fund (CF), the European Agricultural Fund for Rural Development (EAFRD), and the European Maritime and Fisheries Fund (EMFF). The structural and cohesion policy is a central policy area of the EU and has substantially contributed thus far towards the integration of the EU internal market. For details on this topic, see Bachtler, Mendez, and Wishlade (2016); Baun and Marek (2014).

See Barrell, Gottschalk, Holland, Khoman, Liadze, and Pomerantz (2008).

See Afonso and Sequeira (2010). However, after the financial crisis, structural differences across the Euro area have increased. This has created imbalances in the Euro area and asymmetric shocks have become material. Against this backdrop, the synchronized business cycle of the EU has been heavily affected, and divergences can be found now in the monetary policy transmission across EU countries. For empirical evidences, see Mandler, Scharnagl, and Volz (2016), pp. 1–24.

Giannone, Lenza, and Reichlin (2009), p. 7.

Afonso and Sequeira (2010), p. 21.

Inter alia, see Merler (2015).

Houben and Kakes (2013), p. 12.

See Drehmann, Borio, and Tsatsaronis (2012), pp. 18–19. See also Borio (2012), pp. 3–4.

Drehmann, Borio, and Tsatsaronis (2012), pp. 19–20.

Idem, p. 3.

Houben and Kakes (2013), p. 23.

As argued by Constancio (2014), ‘Tailoring monetary policy decisions to specific sectoral or regional differences in credit or asset price developments might have inappropriate side effects in other areas.’

A similar understanding of the relationship between legal structure and monetary policy is offered by Cecchetti (1999).

Eidenberger, Liebeg, Schmitz, Seliger, Sigmund, Steiner, Strobl, and Ub (2014), p. 85.

For example, see Cheun, von Köppen-Mertes, and Weller (2009). The authors offer an interesting assessment on the impact of the legal constraints on the operational and collateral frameworks of the FED, of the Eurosystem, and of the Bank of England. In particular, the performance of the three central banks is strictly related to the specific characteristics of the legal frameworks of their monetary policy operations.

This flexibility is inherent in the regulatory construction of the two policies. In fact, the regulatory acts issued by both the central banks and the macroprudential authorities theoretically permit to quickly react to negative macroeconomic circumstances by adjusting their strategies and/or adopting tools that may better target the policy objectives. On the one hand, the issuance in 2015 of quantitative easing by the ECB is one example of this flexibility in the monetary policy framework. On the other hand, the national flexibility measures that national macroprudential authorities may adopt pursuant to article of Art. 458 CRR are examples of flexibility in the macroprudential architecture.

For details, see Chwieroth and Danielsson (2013).

Baker (2015), p. 26. See also IMF (2012), p. 5.

Baker, Andrew (2015), p. 19.

See Idem, p. 27.

See Chwieroth and Danielsson (2013).

See IMF (2012), p. 19.

See ESRB (2014b), p. 2. See also Kohn (2015).

For a critical appraisal, see Duff (2014), pp. 183–220.

For a comparative account on the delegation of powers to public authorities and on the constitutional limits, see Caranta, Andenas, and Fairgrieve (Eds.), in particular, Chaps. 2 (France) and 3 (Germany). For a discussion on the central role that constitutions play in delegating powers to independent bodies, see Lawson (1999), pp. 23–29.

For an in-depth analysis of the constitutional limits imposed by the Treaty to EU public authorities, see Weatherill (2012), pp. 570–582. With respect to the establishment of the ESAs, in particular, Van Cleynenbruegel (2014), p. 81, argues that it reflects a constitutional delegation upward from the Member States to an intermediate supranational body that operates firmly within the legal space established by the EU Treaties.

It is generally argued that governments delegate powers in order to reduce decision-making costs and enhance the credibility of their policies. For an empirical assessment of this argument, see Gilardi (2002), pp. 873–879.

A relevant problem in the past regarding this topic was related to the rules governing the delegation of powers to public authorities in accordance with the EU Treaty. Starting from the well-known ‘Meroni case’ (Meroni & Co., Industrie Metallurgiche, SpA v High Authority of the European Coal and Steel Community (Case 9–56)), the delegation of powers to an agency could relate only to clearly defined executive powers, while the delegation of broad discretionary powers was considered not permissible. Consistently with the Romano case (Giuseppe Romano v Institut national d’assurance maladie-invalidité (Case 98/80)), under the Union law it was deemed illegitimate for a body being empowered by the Council to adopt acts having the force of law. However, this strong stance of the European jurisprudence was attenuated in the case ‘United Kingdom of Great Britain and Northern Ireland v European Parliament and Council of the European Union’ (C-270/12), where the ECJ has argued that a public body established under the Treaty with precisely delineated powers and amenable to judicial review in the light of the objectives established by the delegating authority can be legally established. For the ECJ, only a delegation of powers with a very large measure of discretion will be incompatible with the Treaty (see para 52–54). Instead, the EU legislature—pursuant to Article 114 TFEU—may ‘delegate to a Union body, office or agency powers for the implementation of the harmonisation sought’, where in particular ‘the measures to be adopted are dependent on specific professional and technical expertise and the ability of such a body to respond swiftly and appropriately (para 105)’. For a discussion on the delegation of powers allowed by the Treaty with respect to the ESAs, see Ferran (2015), pp. 81–82; Scholten and van Rijsbergen (2014), pp. 389–405.

See Egawa, Otani, and Sakiyama (2015), pp. 15–16.

This is the case of those countries where macroprudential rules can be only enacted with the approval of the Parliament or where macroprudential policy impinges on policy areas that remain within the government’s control. For details, see IMF (2013b), p. 18.

Inter alia, see IMF (2012), p. 19. See also Kohn (2015).

A similar argument is developed with respect to US Fed’s macroprudential reforms by Calomiris (2010). More precisely, the author discusses the opinion shared by many that expanding the role of the Fed as macroprudential supervisor would determine negative outcomes, since it would worsen the politicization vulnerability of the Fed.

For an in-depth analysis of the role played by central banks in the process of creating the EU macroprudential framework, see McPhilemy (2016), pp. 526–544.

Idem, p. 529.

Broadly speaking, one can also argue that the entire European Monetary and Banking Union represent a worldwide unicum for its institutional construction. This opinion is shared, inter alia, by Farina and Tamborini (2001), at pp. 8–9; Tamborini (2004), p. 153.

For more details on the institutional law of the Banking Union, see Theissen (2014); Busch and Ferrarini (eds.) (2015).

For a broad overview on this relationship, see Schoenmaker (2012).

We refer, in particular, to the ESRB recommendations.

The relevance of this analysis is clearly acknowledged in Angelini, Neri, and Panetta (2011), at pp. 6–7.

As already noted the overriding importance of price stability is clearly indicated in Article 119(2) and Article 219(1) TFEU, and it is further reiterated in Article 127(1) and 282(2) TFEU. For an in-depth analysis of these Articles with respect to the price stability objective, in particular, see Siekmann (ed.) (2013), pp. 70–77; Waldhoff (2013), pp. 277–285. It must be noted that price stability is not only the primary objective of the ESCB, but it constitutes an overriding objective of the Union, pursuant to Article 119(2) and Article 119(3) TFEU. For details, see Lastra (2015), p. 254.

Teivanen (1997), p. 61. It must be noted, however, that for quite some time in the past, price stability, growth, and full unemployment were considered objectives having the same importance. For details, see Siekmann (2015), at note 35.

Lastra (2015), p. 254, argues that the objective of financial stability indeed was not considered at the time of the adoption of the Maastricht Treaty as relevant as the price stability objective. However, with the burst of the financial crisis, the importance of this objective was reconsidered in light of the negative spillovers that systemic events may have on the internal market. In this context, the Eurosystem Mission Statement clearly states that the aim of the ESCB is to safeguard financial stability and promote European financial integration. The Governing Council of the ECB formulated the Eurosystem’s mission statement as follows: ‘We in the Eurosystem have as our primary objective the maintenance of price stability for the common good. Acting also as a leading financial authority, we aim to safeguard financial stability and promote European financial integration.’ For details, see http://​www.​ecb.​int/​ ecb/​orga/​escb/​html/​mission/​ eurosys.​en.​html.

For details on the hierarchy of objectives assigned to the ESCB, see Siekmann (2015), p. 49. See also Lenihan (2008), pp. 31–32; Dutzler (2003), p. 35; Zilioli and Selmayr (2001), p. 26; Louis (1995), p. 58; Smits (1997), p. 399.

Gianviti (2010), p. 474; Siekmann (2015), p. 49.

Manger-Nestler (2013), p. 37.

See Zilioli (2013). This is consistent with the suggestions upheld by the de Larosière Report, according to which the ESCB has a key role to play in macroprudential oversight. See de Larosière Report, p. 44. For an in-depth survey of the complementarity of financial stability to price stability, see Cukierman (2011), pp. 87–90.

As better explained in the next section, this is principally due to the decision-making process and to the governance structure of the SSM where the Governing Council, made of central bankers, retains a leading role in the supervisory decision-making and monetary policy considerations can influence the supervisory decisions.

For an in-depth discussion on the legal arrangements established at the national level in view of the need to ensure such coordination, see Lastra (2015), pp. 129–140.

In France the Law No. 2013-672 of 26 July 2013 assigns hard-law macroprudential powers to the Autorité de Contrôle Prudentiel et de Résolution, while the Haut Conseil de stabilité financière (HCSF), established as national macroprudential authority, is tasked with the oversight of the financial stability, and it aims to facilitate the cooperation and exchange of information between the institutions that its members represent, including Banque de France. A similar institutional model also holds in Germany. In accordance with the German Banking Act (Gesetz über das Kreditwesen), BaFin retains the hard-law macroprudential powers on the application of the relevant tools. However, the Act on Monitoring Financial Stability (Gesetz zur Überwachung der Finanzstabilität) provides a legal basis for the Ausschuss für Finanzstabilität, which constitutes the German national macroprudential authority entrusted with soft-law powers and information exchange tasks.

In Norway, the legislation provides the macroprudential policy is to be principally conducted by the Minister of Finance (Finansdepartemendet), who retains overall responsibility for financial stability and has the power to calibrate the capital requirements for financial institutions. For further details, refer to the Act on Financing Activity and Financial Institutions (Financial Institutions Act), 10 June 1988 No. 40.

For example, Banca d’Italia has assumed macroprudential functions on the basis of Article 67 of the Italian Banking Act (Testo Unico Bancario) without having constituted any macroprudential committee. Instead, it is responsibility of its Governing Council to adopt macroprudential policy measures, having ample discretion on their normative content. For details on Belgium, see supra at notes 1111–1113.

For a comparative analysis of the objectives set out in the Statutes of national central banks and on the priority given to price stability when multiple objectives are defined, see Gianviti (2010), pp. 454–463.

The existence of such horizontal interdependency becomes clear when looking at the relevant provisions contained in Council Regulation (EU) No. 1096/2010. The ECB ensures the ESRB Secretariat and, to this purpose, provides human and financial resources for the performance of the tasks of the ESRB (Article 3). In view of this, the ECB ensures the work of the General Board, of the Steering Committee, of the Advisory Technical Committee, and of the Advisory Scientific Committee of the ESRB. In addition, the ECB, in providing analytical, statistical, administrative, and logistical support to the ESRB (Article 2), collects and processes all the information that are deemed necessary for the achievement of ESRB’s objective (Article 5). In addition, this horizontal interdependency can be recognized by looking also at the governance of the ESRB, as the General Board and the Executive Board are dominated by ESCB members.

For example, this is particularly the case when the national central bank assumes joint responsibility for banking supervision together with a supervisory authority.

On this topic, Visco (2011), at p. 132, argues that at the EU level, the structure of the ESRB is intended to ensure consistency between monetary and macroprudential policies, in view of its ‘close relationship with the European System of Central Banks, which represents the backbone of the new institution’. However, there are no evidences that the structure of the ESRB is really able to foster this policy consistency. Instead, as noted in the European Parliament resolution of 11 March 2014 with recommendations to the Commission on the European System of Financial Supervision (ESFS) Review (2013/2166(INL)), as monetary policy can have significant influence on credit and asset price bubbles and therefore a conflict of interests between the monetary policy of the ECB and the ESRB’s activity might arise.

However, it must be here emphasized again that Article 25(2) of Council Regulation (EU) No. 1024/2013 requires the ECB to carry out its supervisory tasks without prejudice to and separately from its tasks relating to monetary policy and any other tasks. In addition, Article 24(4) provides that ‘The ECB shall ensure that the operation of the Governing Council is completely differentiated as regards monetary and supervisory functions. Such differentiation shall include strictly separated meetings and agendas’.

The potential of conflicts between monetary and macroprudential policies is recognized in the Recital (14) of the Decision ECB/2014/39 of the European Central Bank of 17 September 2014 on the implementation of separation between the monetary policy and supervision functions of the European Central Bank (ECB/2014/39), according to which ‘the ECB is responsible for carrying out monetary policy functions with a view to maintaining price stability in accordance with Article 127(1) TFEU. The objective of its supervisory tasks is to protect the safety and soundness of credit institutions and the stability of the financial system. They should therefore be carried out in full separation from the monetary policy function in order to avoid conflicts of interest and to ensure that each of these policy functions is exercised in accordance with its particular objectives. At the same time, effective separation between the monetary policy and supervisory functions should not prevent the reaping, wherever possible and desirable, of all the benefits to be expected as a result of combining these two policy functions in the same institution, including drawing on the ECB’s extensive expertise in macroeconomic and financial stability issues and reducing double work when gathering information’. In view of this, the recital concludes by arguing that ‘It is therefore necessary to put in place mechanisms that allow an adequate flow of data and other confidential information between the two policy functions’.

For example, see Opinion of the European Central Bank of 27 November 2012 on a proposal for a Council regulation conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions and a proposal for a regulation of the European Parliament and of the Council amending Regulation (EU) No. 1093/2010 establishing a European Supervisory Authority (European Banking Authority) (CON/2012/96); Opinion of the European Central Bank of 2 September 2015 on bank resolution (CON/2015/31).

This opinion is advocated, in particular, by Zilioli (2016), pp. 125–179; Ter Kuile, Wissink, and Bovenschen (2015), pp. 155–190. In particular, Zilioli (2016), p. 169, suggests that from a legal point of view, the idea of creating two different levels of independence for the two ECB functions is not tenable as the use of Article 126(7) to set up the supervisory tasks of the ECB cannot be used to diminish the independence granted to the ECB by Article 130 TFEU. As a result, for the author, the independence granted to the ECB by Article 130 TFEU shall also apply to it when performing its supervisory functions. Conversely, Lastra (2015), p. 271, argues that when it comes to supervision, the application of the principle of independence should be different, and the supervisory independence should be constructed in less strict terms than the independence of the ECB in its central banking functions. Consistent with this approach, the GCFC in its Order of 14 January 2014—2 BvR 2728/13, states that ‘The constitutional justification of the independence of the European Central Bank is, however, limited to a primarily stability-oriented monetary policy and cannot be transferred to other policy areas (para 59)’.

In this respect, Constâncio (2013) argues that the separation between the ECB’s monetary and supervisory function laid down in the legislation does not mean isolation, as the conferral of supervisory tasks to a central bank is in line with the responsibilities of many other central banks that combine these two functions. Cœuré (2013) confirms this statement claiming that the allocation of macroprudential regulatory instruments under the SSM is therefore an important design feature of the draft legislation, as the ECB, having a clear price stability mandate, will have incentives to intensify the prudential policies seeking to counteract emerging financial imbalances and risks. For Cœuré this would reduce pressures on monetary policy and will provide incentives to conduct supervisory policies in a way that would reduce the likelihood of crises and therefore of lender-of-last-resort interventions.

These members are usually the top executives of the relevant national competent authorities responsible for banking supervision. See ECB (2014a), p. 13.

The full discipline is laid down in Article 26(8) of Council Regulation (EU) No. 1024/2013. In addition, it must be noted the important role played in this process by the Directorate General Macro-Prudential Policy and Financial Stability (DG/MF) of the European Central Bank (ECB), which provides analyses and policy advice on issues relating to financial stability, financial regulation and supervision, as well as financial stability arrangements. Its Macro-Financial Policies Division, in particular, is tasked with the design and coordination of the macroprudential strategies undertaken by the ECB in its capacity of supervisory authority. This ECB Directorate also cooperates with national competent or designated authorities in the design and implementation of macroprudential tools under the SSM framework.

Articles 5(2) and 9(2) of Council Regulation (EU) No. 1024/2013.

ECB (2014a), p. 14.

Article 25(2) of Council Regulation (EU) No. 1024/2013.

Idem.

Article 25(4) of Council Regulation (EU) No. 1024/2013.

For an in-depth analysis of the principle of separation between monetary policy and supervisory functions within the SSM, see Boccuzzi (2016), pp. 37–40. For a critical appraisal, see Baglioni (2016), pp. 35–38.

There is in fact a close association between the principle of independence laid down in Article 19 and the principle of separation set out in Article 25 of Council Regulation (EU) No. 1024/2013. Where other policies not related to the supervisory objectives enlisted in the Regulation are introduced in the decision-making process of the SSM, the independence of its decision-making bodies would be endangered. For further details on this topic, see Boccuzzi (2016), p. 37.

Article 26(8) of Council Regulation (EU) No. 1024/2013.

Ter Kuile, Wissink, and Bovenschen (2015), p. 178.

For Baglioni (2016), p. 34, this provision implies that the separation principle—and, by extension, the principle of independence—applied to the ECB in its capacity of banking supervisor is not as rigid as one may expect at first sight. See also Amtenbrink (2015), at note 115, who claims that due to these peculiar governance arrangements, a strict separation of monetary and prudential supervisory tasks within the SSM has not been achieved.

ECB (2014a), p. 19.

Tröger (2015), p. 184.

In accordance with the Recital (73) of Council Regulation (EU) No. 1024/2013, in fact, ‘With a view to ensuring separation between monetary policy and supervisory tasks, the ECB should be required to create a mediation panel. The setting up of the panel, and in particular its composition, should ensure that it resolves differences of views in a balanced way, in the interest of the Union as a whole.’

Thus far, the Mediation Panel has never been requested by a national competent authority. This is consistent with our assumption; in fact, since the Supervisory Board has only utilized its microprudential powers until now, conflicts with monetary policy have never occurred. As such, the risk of conflict between institution-specific microprudential instruments and monetary policy can be regarded as negligible. By contrast, if in the future the Supervisory Board will submit draft decisions of macroprudential nature, a risk of conflict with the monetary policy stance of the ECB—in its central banking capacity—will be more likely to arise, thereby requiring—if requested by national competent authorities—mediation resolution.

Regulation (EU) No 673/2014 of the European Central Bank of 2 June 2014 concerning the establishment of a Mediation Panel and its Rules of Procedure (ECB/2014/26).

Article 4 of Regulation (EU) No. 673/2014.

Article 7 of Regulation (EU) No. 673/2014.

See ECB (2014b), pp. 5–6.

For details, see Article 8 of Regulation (EU) No. 673/2014.

Huertas (2016), p. 26, who also claims this Mediation Panel could obstruct the ability of the SSM to take decisions quickly.

For more details on the Case Committee, see Article 9 of Regulation (EU) No. 673/2014. In particular, the Case Committee is tasked with the analysis of whether the request for mediation is admissible and legally founded. Based on this assessment, it must prepare a legal opinion to be submitted to the Panel for initiating the mediation procedure.

Article 10 of Regulation (EU) No. 673/2014.

Tröger (2015), p. 185.

In this perspective an important contribution for understanding this large variance in the implementation of the macroprudential settings across the EU countries is given in ESRB (2014a).

See supra at Chap. 2, Sect. 2.​3.​2.

The definition of competent authority is laid down in Article 4(1) (40) CRR. Pursuant to it, competent authority means a public authority or body officially recognized by national law, which is empowered by national law to supervise institutions as part of the supervisory system in operation in the Member State concerned.

In most of the cases the national designated authority is the national competent authority. However, the government for a number of political and institutional reasons may decide to delegate these macroprudential powers to other authorities, such as the national macroprudential committee. For this reason, it is important to stress the difference between competent authorities and designated authorities.

For details see Article 131 CRD IV.

See Recommendation of the European Systemic Risk Board of 22 December 2011 on the macroprudential mandate of national authorities (ESRB/2011/3) (2012/C 41/01).

Sub-recommendations B.1 and B.2 of Recommendation ESRB/2011/3.

For details, see Sub-recommendation C.1 of Recommendation ESRB/2011/3.

Sub-recommendation C.4 of Recommendation ESRB/2011/3.

See Sub-recommendation B.3 of Recommendation ESRB/2011/3.

For a description of the partial-integration model and of the independent institutions model, which acknowledge the constitution of a separate committee—either established under the roof of the central bank or fully independent—see supra at Chap. 4, Sects. 4.​4.​1–4.​4.​3.

See supra at Chap. 4, Sect. 4.​4.​1.

For an overview of these powers, see the following national provisions: Article 29 of the Law of 22 February 1998 Establishing the Organic Statute of the National Bank of Belgium; Article 15 of the Central Bank of Cyprus Law of 2007; Article 15 of the Act No. 6/1993 Coll. on the Czech National Bank, which explicitly states ‘The Bank Board shall set monetary and macroprudential policy and the instruments for implementing these policies. It shall decide upon the fundamental monetary and macroprudential policy measures of the Czech National Bank and measures in the area of financial market supervision’; Article 6 of the Statute of Bank of Estonia (Eesti Pank) (Decision No. 3-1 of 28.04.2015); Articles 21 and 22 of the Law of Autonomy of the Banco de Espana (Law 13/1994 of 1 June 1994); Article 18B of the Irish Central Bank Act of 1942 (consolidated version); Article 11 of the Law on the Bank of Lithuania (1 December 1994 No I-678); Article 34 of the Organic Law on the Banco de Portugal (Law No. 5/98 of 31 January 1998 as amended by Decree-Law No. 142/2013); Article 6 of the National Bank of Slovakia Act No. 566/1992 Coll.

For the details of this model, see supra at Chap. 4, Sect. 4.​4.​2.

For an analytical survey of variations and discrepancies in the implementation of the macroprudential policy mandate at the national level, see ESRB (2014a). Although the report is not up to date to the new macroprudential developments in many EU Member States, nonetheless it provides a clear picture of how different countries have established their own macroprudential institutional frameworks differently.

The establishment of an independent macroprudential authority, institutionally separate from the national central bank, finds particular support by the ESRB which indeed recommends Member States to ‘entrust the macroprudential authority at a minimum with the tasks of identifying, monitoring and assessing risks to financial stability and of implementing policies to achieve its objective by preventing and mitigating those risks’. In particular, see Recommendations B and C of ESRB Recommendation of 22 December 2011 on the macroprudential mandate of national authorities (ESRB/2011/3).

This main responsibility can be found in all the national legislations establishing national macroprudential authorities in Europe. In Germany, Section 2 of the Act on the Strengthening of German Financial Supervision (Gesetz zur Stärkung der deutschen Finanzaufsicht, vom 28. November 2012 (BGBl. I S. 2369)) assigns to the Ausschuss für Finanzstabilität—the German Financial Stability Council—the following tasks: (1) the discussion of issues relating to financial stability; (2) strengthening the cooperation of the authorities represented in the committee in the event of financial crisis; (3) cooperate with the ESRB for the issuance of recommendations and warnings on financial stability; (4) issue warnings and recommendations. Similarly, in France, the new Article L631-2-1 of the Monetary and Financial Code (Code monétaire et financier), the Haut Conseil de Stabilité Financière, conducts the general oversight of the financial stability and the macroprudential policy. In this respect, it must (1) cooperate and exchange information with other institutions represented; (2) identify and assess systemic risks arising in the financial markets and take into account the recommendations issued by the competent European institutions; (3) issue recommendations by itself in order to preserve the stability of the financial system. Another example is provided by the Financial Service Act 2012, which established the Financial Policy Committee as the UK macroprudential authority, and assigned to it, among others, the task of identifying, monitoring, and taking action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the UK financial system (see PART 1A 9C). In the Netherlands, instead, the Financieel Stabiliteitscomité has been created by the Minister of Finance with the authoritative act Besluit van de Minister van Financiën van 2 november 2012, kenmerk: FM2012/1193M, tot oprichting van het financieel stabiliteitscomité. Article 4 entrusts the committee, inter alia, with the tasks of exchanging information about the stability of the financial system, discussing possible actions to mitigate these risks, including the options for reinforcing the statutory instruments assigned to the other competent authorities, and issuing warnings and recommendations with respect to the identified risks. Similarly, in Austria, Article 13 of the Finanzmarktaufsichtbehörden-Gesetz states the mandate of the Finanzmarktsta bilitätsgremium (Financial Market Stability Board), having the primary aim of strengthening financial stability, mitigating the risks of systemically important financial institutions, and addressing the structural and cyclical aspects of systemic risk.

In most of the cases the governors of the national central banks are also chairmen of the national macroprudential authorities. In addition, the majority of the components in the committee are central bank’s officers. Then, it can be easily assumed that the monetary policy concerns are widely considered in the discussions on macroprudential policy and its possible side effects.

This is the case, for example, for the Haut Conseil de Stabilité Financière in France and for Comité du Risque Systémique in Luxembourg. It must be noted, however, that there is only one country, namely, Denmark, where the Ministry is directly in charge of macroprudential policy. In all other cases, the Ministers of Finance, although participating in the work of the macroprudential committees, have limited powers. For an in-depth analysis of the political sensitiveness of macroprudential policy, see Clark and Large (2011), pp. 37–39; Baker (2013), pp. 112–139. See also ESRB (2014b), pp. 12–13.

In this respect, an interesting example is given by the decision-making process of the Ausschuss für Finanzstabilität and of the Haut Conseil de Stabilité Financière. Section 1(1) of the Gesetz zur Stärkung der deutschen Finanzaufsicht Vom entrusted the Bundesbank with a prominent role within the national macroprudential framework. The German Central Bank, in particular, is responsible for analyzing issues related to financial stability and for identifying and assessing systemic risks. In light of this general monitoring, the Bundesbank shall prepare the meetings of the Ausschuss für Finanzstabilität and draw up status reports as a starting point for the committee’s discussions. Instead, Article L631-2-1 of the Code monétaire et financier tasked the Governor of the Banque de France with a leading role in proposing and setting macroprudential measures, such as the countercyclical capital buffer and systemic risk buffer. The Haut Conseil de Stabilité Financière can indeed adopt such measures only upon proposal by the central bank’s Governor.

By way of example, see Section 4 of Gesetz zur Stärkung der deutschen Finanzaufsicht. In addition, see the Memorandum of Understanding between Finansinspektionen and the Riksbank concerning a council for cooperation on macroprudential policy of 17 January 2012.

Cf. supra at Chap. 3, Sects. 3.​1.​2 and 3.​1.​3.

The legal mechanisms leading to an interaction between monetary policy and macroprudential policy have been described in Chap. 5, Sects. 5.​2.​2 and 5.​2.​3.

An interesting survey in this regard is provided by Gualandri (2015), pp. 91–102, where the author discusses the assignments of macroprudential competences and powers within the context of the European supervisory architecture. The author finds that the resulting framework appears complex, fragmented, and cumbersome. Due to this it can result rather ineffective in targeting system risks and ensuring financial stability. As a result, the author advocates the need of corrective actions in the European architecture that may foster a rationalization of the multiple supervisory layers.

In this respect, Osiński (2013), pp. 4–5, claims that ‘the result of fragmentation of responsibility may be that some important systemic risks will fall between the cracks and stay unaddressed’. If this fragmentation cannot be avoided, it is necessary to ensure strong coordination mechanisms between the authorities involved, possibly having a leading institution which can be formally accountable for the whole supervisory process. For a recent survey on regulatory arbitrage as a result of the operationalization of different macroprudential policies across countries, see Reinhardt and Sowerbutts (2015), as the authors provide evidences that domestic non-bank sector increases borrowing from foreign banks after home authorities tighten macroprudential capital instruments.

For more details, see supra at Chap. 2, Sect. 2.​3.​3.

For example, in Germany, the macroprudential powers have been allocated to BaFin, which has no ties to the national central bank. The national flexibility measures laid down in Article 458 of the CRR are also responsibility of BaFin which exercise its banking supervisory functions irrespective of any monetary policy concern. The same holds true for the macroprudential use of Pillar 2 instruments as laid down in Articles 103 and 105 of the CRD IV. In these cases, the German banking supervisor may impose specific macroprudential requirements that may influence the effectiveness of the credit channels with no consideration for the current monetary policy stance.

For more details, see supra at Chap. 4, Sects. 4.​2.​2 and 4.​2.​3.

This is well recognized under an economic perspective by Angelini, Neri, and Panetta (2011), p. 22. The arrangements that allow for cooperation should be established for any macroprudential measure and shall find its primary basis in the legal framework of the relevant authorities.

For more details on this topic, see Ingves and Jansson (2014). The authors describe the ‘monetary policy experiment’ conducted in Sweden, where the policy interest rate was raised in response to a housing bubble. For them, this monetary policy stance has been quite successful as it has contributed the recovery of Sweden from the financial crisis at a pace similar to that in the United States. On this topic, see also ESRB (2014b), pp. 14–15.

For more insights, see supra at Chap. 5, Sect. 5.​2.​2.

An overview of the relevant indicators is provided supra in Table 5.1.

In particular, we refer to Recommendation C of Recommendation of the ESRB of 4 April 2013 on intermediate objectives and instruments of macroprudential policy (ESRB/2013/1), according to which macroprudential authorities are recommended to define a policy strategy that (a) links the ultimate objective of macroprudential policy with the intermediate objectives and the macroprudential instruments under their direct control or recommendation powers; (b) establishes a sound framework for the application of instruments under their direct control, including appropriate indicators to monitor systemic risks and to guide decisions on the application and calibration of the instruments; and (c) establishes an appropriate coordination mechanism with relevant authorities.

See again the Recommendation of the ESRB of 4 April 2013 on intermediate objectives and instruments of macroprudential policy (ESRB/2013/1).

Herzberg and Watson (2014), p. 4.

This is in fact recommended by the ESRB which fully acknowledges the benefits related to the public disclosure of the macroprudential policy strategies. More precisely, see Sub-recommendation D.I of Recommendation of the ESRB of 22 December 2011 on the macroprudential mandate of national authorities (ESRB/2011/3).

Among others, this opinion is shared by Schoenmaker (2014), p. 193.

It should be noted that this necessity for enhancing cooperation between central banks and competent/macroprudential authorities was already apparent at the earlier stage of the European macroprudential construction. For an interesting example, see House of Lords (2009), p. 216.

In this regard, the ECB affirms that ‘price stability is the best—and, ultimately, the only—contribution that a credible monetary policy can make to economic growth, job creation and social cohesion. This reflects the fact that a policy-maker who controls only one instrument cannot meet, and be held accountable for the fulfillment of, more than one objective. The pursuit of additional objectives would risk overburdening monetary policy, and would ultimately result in higher inflation and higher unemployment. Over the longer term, monetary policy can only influence the price level in the economy; it cannot exert a lasting impact on economic activity. This general principle is referred to as the “long-run neutrality of money”. It is against this background that the Treaty provides for a clear and efficient allocation of responsibilities, with monetary policy being assigned the primary objective of maintaining price stability’. For the details, see ECB (2008), p. 34.

Lastra (2015), p. 255, argues that there is now a consensus that the neglect of financial stability considerations by the ESCB in the years leading up to the crisis was of its main causes. See also Lastra and Wood (2010), pp. 531–550.

We refer to the spillover effects that monetary policy may have in terms of financial instability through its transmission channels. For details, see supra at Chap. 4, Sect. 4.​1.

Inter alia, see ECB (2011), pp. 55–91.

An in-depth survey is provided in Issing (2006). For a critical perspective, see instead Gerlach, Browne, and Honohan (2004), pp. 389–439. The ECB’s strategy for monetary policy is further assessed by de Haan, Eijffinger, and Waller (2005), pp. 27–81.

ECB (2011), p. 9.

Idem, p. 10.

For details, see Draghi (2015a).

ECB (2011), p. 84.

Idem, pp. 84–85. See also de Haan, Eijffinger, and Waller (2005), p. 75, where the authors explain that the ECB uses asset price developments in its broadly based assessment of the risks for price stability, although its monetary policy does not explicitly target asset prices.

For details on the administrative organization of the ECB, including the ‘Directorate General Macro-Prudential Policy and Financial Stability’, see the Organization Chart of the ECB, available online at https://​www.​ecb.​europa.​eu/​ecb/​orga/​orgachart/​html/​index.​en.​html

See Mersch (2014).

For better insights, see supra at Chap. 5, Sects. 5.​2.​2 and 5.​2.​3.

Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung (2015). Zukunftsfähigkeit in den Mittelpunkt. Jahresgutachten 2015/16, November 2015 (Hereafter: Annual Economic Report 2015/16).

Annual Economic Report 2015/16, p. 143.

Idem, p. 179.

See Idem, pp. 199–200.

For an interesting survey of costs and benefits of monetary policy targeting also financial stability, see IMF (2015).

Annual Economic Report 2015/16, p. 200.

Among others, this position is shared in Smets (2014), pp. 263–300. The author, in particular, recognizes the need to maintain price stability as the ultimate objective of monetary policy but keeping an eye on the systemic risks that may materialize. See also Weidmann (2012), p. 50.

For a description on how this can be achieved in a monetary union, see Darracq Paries, Rancoita, and Kok (2015), pp. 158–170.

Inter alia, see Aydin and Volkan (2011).

For details on the specialty of the ESRB’s nature, see Ferran and Kern (2010).

Although the macroprudential instruments harmonized at the EU level only apply to banking entities, the ESRB has been actively involved, over the last five years, in detecting systemic risks in all areas of the financial system. To cite some of the important ESRB’s contributions in the non-banking sectors, we briefly mention the following: Recommendation of the European Systemic Risk Board of 20 December 2012 on money market funds (ESRB/2012/1); ESRB report on systemic risks in the EU insurance sector, December 2015; ESRB Report on systemic risks in the EU insurance sector, December 2015; Annual ESRB Risk Dashboard where systemic risks evolving from financial markets are assessed and measured.

It is important to note that redefining the relationship between the ESRB and the ESCB and assigning a special role to the Board in mitigating systemic risks arising from the ESCB’s monetary policy would generate strong resistance by central bankers. This special competence would be interpreted as tightening the independence of the ECB and threatening the autonomy of European central bankers.

Moloney (2014), p. 1009, describes the ESRB as the primary location for macroprudential oversight of the EU financial system.

For details, see Council Regulation (EU) No. 1096/2010 of 17 November 2010 conferring specific tasks upon the European Central Bank concerning the functioning of the European Systemic Risk Board. See also Opinion of the European Central Bank of 4 February 2015 on the review of the mission and organization of the European Systemic Risk Board (CON/2015/4), p. 2.

In details, we refer once again to Article 7 of Regulation (EU) 2010/1092.

Article 130 TFEU and Article 7 of ESCB Statute. For details, cf. Chap. 3, Sect. 3.​4.​1.

This power has been exercised by the ESRB a number of times. For example, the Recommendation ESRB/2014/1 of 18 June 2014 on guidance for setting countercyclical buffer rates (ESRB/2014/1) provides as addressees the ‘designated authorities’ which are defined by the Recommendation itself as the public authorities or bodies designated by a Member State in accordance with Article 136(1) of Directive 2013/36/EU or the ECB in accordance with Article 9(1) of Regulation (EU) No. 1024/2013. There is no doubt therefore that the ECB, in its capacity of banking supervisor, is a potential addressee of the ESRB recommendations from which it can take instructions.

In this respect, the principle of independence laid down in the Treaty works in two ways: it restrains the entities composing the ESCB from taking instructions from other bodies; and it restrains the other bodies from seeking to influence the members of the ESCB. See Smits (1997), p. 161.

As pointed out in the Opinion of the European Central Bank of 4 February 2015 on the review of the mission and organization of the European Systemic Risk Board (CON/2015/4) (2015/C 192/01), the inclusion of the ECB, in its capacity of banking supervisor, as a potential addressee should in no way prejudice the primary objective of the ESCB of maintaining price stability in accordance with Article 127(1) of the Treaty. The opinion clearly draws a line between ECB in its capacity of central bank and the ECB in its capacity of banking supervisor within the SSM, assigning the full independence established by Article 130 TFEU only to the former.

As pointed out in the Resolution of the European Parliament of 11 March 2014 with recommendations to the Commission on the European System of Financial Supervision (ESFS) Review (2013/2166(INL)), the establishment of the ESRB outside the ECB would, due to Article 130 of the Treaty on the Functioning of the European Union (TFEU), not allow the ESRB to address the ECB in opinions, recommendations, or warnings. However, it should be noted that the ESRB has indirectly targeted systemic risks arising from the stances of monetary policy. For example, with the Recommendation ESRB/2011/1 of 21 September 2011 on lending in foreign currencies, the ESRB acknowledged that an excessive foreign currency lending may trigger systemic externalities due to the trends in the currency exchange rates. As the effects of monetary policy on the exchange rate are widely known, the ESRB in issuing such a recommendation has indirectly targeted the systemic implications of monetary policy via its exchange rate transmission channel. The same argument holds true for Recommendation ESRB/2011/2 on US dollar denominated funding of credit institutions.

In line with Article 16 of ESAs Regulations, and similar to the ESRB, the ESAs ‘shall, with a view to establishing consistent, efficient and effective supervisory practices within the ESFS, and to ensuring the common, uniform and consistent application of Union law, issue guidelines and recommendations addressed to competent authorities, including the ECB in its capacity of banking supervisor’. It is true that Article 19 of the Council Regulation (EU) No. 1024/2013 provides the principle of independence also for the ECB in its capacity of banking supervisors. According to the wording of this Article, ‘The members of the Supervisory Board and the steering committee shall act independently and objectively in the interest of the Union as a whole and shall neither seek nor take instructions from the institutions or bodies of the Union, from any government of a Member State or from any other public or private body.’ By the same token, ‘The institutions, bodies, offices and agencies of the Union and the governments of the Member States and any other bodies shall respect that independence.’ However, the concrete applicability of this Article is questionable in view of the above, as the interactions existing between the ECB, the ESAs, and the ESRB do not seem to support the full independence of the ECB when performing its supervisory functions. On this topic, see Baroncelli (2014), p. 142.

See Draghi (2015b).

See Sapir (2014), pp. 162–163.

For details, see Borio and Shim (2007), p. 17.

For more details, see Mazzaferro (2011), p. 131. This large and challenging mandate required the ESRB to develop in few years a solid background in all areas of the financial system. For Moloney (2014), p. 1015, the ESRB is designated as a reputational body which is deemed to influence policymakers and supervisors through the moral authority associated with the quality and range of its members.

See Nyberg (2011), p. 6(8).

For details on the spillover effects, see supra section Chap. 4, Sects. 4.​1.​2 and 4.​1.​3.

A discussion of these programs is provided, inter alia, by De Grauwe (2013), pp. 520–535.

CGFS (2013), p. 6.

See Annex—Executive Summary, C 119/9 of Recommendation of the European Systemic Risk Board of 20 December 2012 on funding of credit institutions (ESRB/2012/2). For a thorough analysis of asset encumbrance in Europe, see also EBA (2015).

See Annex—III.1.4, C 119/30 of Recommendation of the European Systemic Risk Board of 20 December 2012 on funding of credit institutions (ESRB/2012/2).

Idem.

Idem.

See CGFS (2013), p. 45.

For a better explanation of supply-demand imbalances in collateral management, see CGFS (2013), pp. 15–21. For an empirical survey on the countercyclical use of collateral and margin requirements by central banks, see CGFS (2010). It should be noted that the ESRB has not remained impassive against the potential system risk concerns of monetary policy. For example, the European macroprudential body is quite active in discussing the systemic vulnerabilities arising from the current low interest rate environment. For example, see ESRB General Board meeting in Frankfurt of 25 June 2015, Press Release. According to the press statement, ‘The ESRB is assessing, from a macro-prudential perspective, potential financial stability effects from the current low interest rate environment and structural changes in the financial sector. A report including potential policy proposals is to be presented to the General Board in mid-2016.’ The accommodative monetary policy of the ECB and its negative implications for financial stability are serious fields of analysis for macroprudential purposes, in particular with respect to the soundness of long-term investors, including insurance companies and pension funds, and their ability to generate adequate returns. See also ESRB General Board meeting in Frankfurt of 20 December 2012, Press Release. Thus, the systemic risks originating from sudden changes in monetary policy are not negligible in the eyes of the ESRB and require specific measures in order to prevent the build-up of negative spillovers to the real economy. Against this backdrop, the ESRB has signaled—albeit only indirectly—some of the risks to financial stability associated to changes in the monetary policy stance of central banks. One prominent example lies in the Recommendation ESRB/2011/1 of 21 September 2011 on lending in foreign currencies (ESRB/2011/1) (2011/C 342/01), where the ESRB has recognized the negative impact of foreign currency lending on all monetary policy transmission channels. This recommendation acknowledges that a monetary policy stance depreciating the domestic currency could lead to the materialization of credit risks relating to foreign currency loans along with bank funding risks.

On the issue, see Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung (2015), Chap. 4, Sect. 4.​3.

For a better understanding of the bank-sovereign nexus in Europe, see Breckenfelder and Schwaab (2015). See also De Bruyckerea, Gerhardtb, Schepensc, and Vander Vennet (2013), pp. 4793–4809; Angelini, Grande, and Panetta (2014); Buch, Koetter, and Ohls (2013).

For a survey of the transmission channels of this nexus, see BCBS (2011).

See ESRB (2015), pp. 44–45.

This policy option is briefly discussed in ESRB (2015), p. 147.

See Article 6 of Regulation (EU) No. 1092/2010. For further specifications on the role and structure of the General Board, see also Articles 2 and 7 of Decision of the European Systemic Risk Board of 20 January 2011 adopting the Rules of Procedure of the European Systemic Risk Board (ESRB/2011/1).

See Article 10(3) of Regulation (EU) No. 1092/2010.

We refer to Verhelst (2011), pp. 28–33.

As above argued, the ESRB is entrusted with the general oversight of systemic risks in the European Union. The large scope of this mandate seems to include the systemic risk implications of monetary policy, as the EU law does not restrain, nor forbid, such a supervisory analysis.

We have described the legal mechanisms established in the EU framework in Chap. 5, Sects. 5.​2.​1–5.​2.​3.

For example, this is recognized by Mersch (2013). For a similar stance, see Smets (2014). Due to the legal constraints posed by the Treaty, the legislative reviews of the ESRB institutional arrangements have always neglected the need to weaken the hard separation between monetary and macroprudential policies in view of a policy rapprochement. Instead, these reviews have mainly focused on the need to enlarge the macroprudential toolbox assigned to the ESRB and on the need to strengthen cooperation among the relevant authorities. For details on some of these proposals, see High-Level Group on the ESRB Review (2013), Contribution to the Review of the ESRB; Report from the Commission to the European Parliament and the Council on the mission and organization of the European Systemic Risk Board (ESRB) {SWD(2014) 260 final}; ESAs Joint Opinion—Review on the functioning of the European Systemic Risk Board (ESRB).

Praet (2011), pp. 4–5.