By giving unlimited access to central bank refinancing against adequate collateral, our non-standard measures have been pivotal in relieving bank funding stress. The collateral framework has been adjusted as necessary to ensure continued adequate risk protection for the ECB’s balance sheet, while at the same time promoting transparency, for example in markets for structured finance products. Ensuring that solvent banks remain liquid has contributed to avoiding an abrupt deleveraging which would have deeply damaged the economy.
The Outright Monetary Transactions (OMTs) announced a year ago have prevented risks of destructive scenarios with potentially severe challenges for price stability in the euro area. OMTs serve as a fully effective backstop, within the ECB’s mandate, and under formal conditionality so as to preserve the appropriate incentives for governments to ensure fiscal solvency and adopt those structural policies that can put the economy on a sustainable path.
Over the past twelve months, confidence in the euro area has returned. As a consequence, fragmentation in euro area funding markets has been receding. This improvement owes not only to the ECB’s non-standard measures, but also to progress by governments in improving the euro area governance and in pursuing reform agendas. Deposit outflows from stressed countries have been reversed. Market access for banks has improved. Reliance on ECB funding support has been steadily declining. These improvements are reflected primarily in the on-going advance repayments of funds by several banks which had borrowed from the ECB under the two three-year longer-term refinancing operations. While repayment of central bank credit is certainly a sign of normalisation, the resulting reduction in excess liquidity can reinforce upward pressures on term money market rates. We will remain particularly attentive to the implications that these developments may have for the stance of monetary policy.
The tasks of the ECB in the reformed EMU architecture
The Maastricht set-up has been substantially strengthened since the start of the crisis. Europe has reinforced fiscal and macro-economic surveillance, created a permanent crisis management mechanism, the ESM, and has improved its institutional framework. It is moving swiftly towards the Single Supervisory Mechanism (SSM) for banks in the euro area. A key priority of the agenda for the last quarter of 2013 is to complement it by a Single Resolution Authority and Single Resolution Fund as proposed by the European Commission. The ECB strongly supports the envisaged timeline for the establishment of the SRM by 1 January 2015, which adequately reflects the urgency.
Let me make a few remarks on the specific role of the ECB in the progress towards a fully-fledged Banking Union. Already in 2010, with the decisive contribution of your institution, the ESRB was created to oversee macro-prudential risks in the financial system as a whole. The ECB ensures the Secretariat and thereby provides support to the ESRB. This year, a further-reaching step is being made with the imminent launch of the Single Supervisory Mechanism. The ECB is fully committed to assume its new responsibilities and to discharge accountability accordingly. Preparatory work has started in order to ensure that the new tasks are performed at the highest level of effectiveness and professionalism.
While synergies between the new supervisory and existing monetary policy functions exist, the ECB will strictly respect the principle of separation between monetary policy and banking supervision, as foreseen in the SSM Regulation. Such separation will ensure that the ECB will continue to fulfil its primary mandate of price stability in complete independence, in line with the Treaty.
The effective separation of monetary policy and bank supervision decisions will be implemented both at the decision-making level and at the technical staff level. A separate Supervisory Board will be created to draft and enforce decisions. Furthermore, deliberations of the Governing Council on supervisory matters will be strictly separated from monetary policy decisions. This separation between the two tasks will be underpinned by separated agendas and meetings.
Finally, let me say a few words on the involvement of the ECB in the troika. Back in 2010, we were asked by the Council to provide our technical expertise to the design and monitoring of EU/IMF financial assistance programmes. In the meantime, the ECB has been allocated a number of specific tasks by the ESM Treaty and EU secondary legislation. We act in liaison with the Commission to provide technical advice, based on our expertise. As we have done in the past, we remain ready to share our views on the situation in programme countries with the European Parliament and to explain the advice provided as part of the troika. However, it is important to recall that the Eurogroup is the body which actually decides whether to grant financial assistance and under which terms.
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