Yves Mersch, Member of the Executive Board of the ECB, shares his views on some pressing questions regarding current challenges and changes needed for central banks.
Fast-moving times sometimes require adjustments. Central banks are not excluded from this.
Sometimes minor amendments are sufficient, like the introduction of a rotation scheme across the larger currency union. Other changes might call for bigger reforms - as the financial crisis painfully highlighted. But often conceptual pendulums swing too far.
While ambition is justified to acknowledge the importance of financial stability, humility is warranted when it comes to policy conclusions. The time is not ripe for an operationalized standalone macroprudential approach - inside or outside the central bank.
Completing the European deposit insurance scheme (EDIS) and the banking union, making progress with the capital markets union and deepening economic and monetary union will lead to a financial cycle that is less determined by national structures. So the most efficient level at which to address these issues will change. But that would not, in and of itself, warrant a separate institution making separate financial stability decisions and complicating the tasks of existing institutions.
In any case, the monetary policy function will need to be closely involved, and is probably best placed to contribute to the development of a more robust conceptual framework. This is a precondition for operationalising a macroprudential stance that would do more than just neutralise an efficient and effective monetary policy stance.
Until these preconditions are met, the best solution is to integrate financial stability concerns into monetary policy at the European level - including possible corrections with instruments at national levels.
Such a transitional equilibrium is, however, subject to necessary changes depending on three factors:
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Deeper knowledge of the determinants of the financial cycle.
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Better understanding of macroprudential transmission mechanisms and policy instruments' consequences, taking into account the institutional evolution of European integration.
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A continuous reassessment of the evolution of the monetary policy toolbox and the consequences of its use for the financial cycle.
Full speech
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