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Thanks to ECB‘s stable principles, the Eurosystem’s risk management framework has successfully weathered the challenges of the financial crisis. The size and type of ECB‘s operations changed, as did the assets ECB accepted as collateral. But ECB‘s principles stayed the same.
Like risk management in the banking sector, central bank risk management has to evolve with the times. So ECB need to reflect on where its principles will lead us in a post-crisis landscape. Most importantly, ECB need to start thinking about a financial risk management framework that will be appropriate in an environment of more conventional monetary policy.
While the benchmark for this future framework should be the pre-crisis state, it is not clear whether ECB can return entirely to the previous status quo. Instead, ECB might have to apply what ECB has learnt from the crisis, retain what is useful for the future, and leave behind things whose time has passed.
This will enable ECB to rely on a framework that is transparent and robust, but also flexible enough to deal with the challenges of the future.