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The new integrated framework is designed at the European level, as part of the newly envisaged banking union. The European System of Central Banks, comprising the ECB and the participating NCBs, has already the responsibility for monetary policy. The authors propose also to assign the macro-prudential policy to the European System of Central Banks, as they explain below. The supervisory task in the prospective banking union is assigned to the ECB.
While much has been written on the Single Supervisory Mechanism, it is not yet clear which body can best execute the new strategy for macro-prudential policy. In the aftermath of the global financial crisis, financial stability committees with a broad remit are emerging worldwide. Examples are the European Systemic Risk Board (ESRB) and the US Financial Stability Oversight Council (FSOC). Experience suggests that such broad committees, representing more or less independent institutions (central bank, treasury, supervisor) with differing objectives, are not very efficient. Members may manipulate information and vote strategically if their preferences differ. Furthermore, each institution has its own culture. The dominant culture at central banks is centred around economists, while supervisors tend to be dominated by accountants and lawyers. That will also lead to a different perspective: macro versus micro.
Schoenmaker's proposal is that:
The European Systemic Risk Board would be the forum to discuss macro-prudential policies for the wider European Union. It will allow for aligning macro-prudential policies of those without – the UK, Sweden, Denmark and most new Member States – and the eurozone. Moreover, it allows for input from the sectoral European supervisory authorities (EBA, EIOPA and ESMA). But to ensure the proactive use of macro-prudential tools, the conduct of macro-prudential policy would be assigned to the European System of Central Banks.
A possible way forward to ensure a proper division of functions at the ECB is to assign the monetary policy and macro-prudential functions at the level of the Governing/General Council. As some ‘outs’ may join the banking union, a macro-prudential committee reporting to the General Council may be the appropriate setting for macro-prudential issues. The supervisory function will be performed by the newly envisaged Supervisory Board. The decision on the application of macro-prudential tools will be taken in the General Council, whose members comprise the Executive Board of the ECB, the presidents of the NCBs and the chair of the Supervisory Board.
This construction allows for both national and micro-supervisory input in the macro-prudential deliberations. It also allows for the appropriate separation between the macro-prudential perspective (of the General/Governing Council) and the micro-prudential perspective (of the Supervisory Board).