Gertrude Tumpel-Gugerell: What is the role of central banks for banking
supervision?
Introductory remarks by Ms Gertrude Tumpel-Gugerell, Member of the Executive Board of
the European Central Bank, at the panel discussion at the ZEIT Konferenz "Finanzplatz:
Menschen und Entscheidungen", Frankfurt am Main, 8 September 2008.
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The ECB has already expressed its position on the possible role of central bank in financial
supervision in 2001. This was triggered in the context in which some countries were in the
process of transferring the supervisory function from the central bank to independent
authorities.
The main position at that time, which remains valid today, is that there is no optimal
arrangement for the organisation of supervision at the national level. All organisational
models - sectoral supervision, supervision by objectives, supervision in a single authority -
can in principle work well or fail depending on circumstances. However, regardless of the
model, it is important that there exists a very close and smooth interplay between the central
banking and the supervisory function.
Does the experience of the turmoil bring new elements in this domain? This is certainly the
case. In general the turmoil has clearly confirmed the importance of a strong interaction
between central banks and banking supervisors as also confirmed by the specific
recommendation of the Financial Stability Forum in this field. As a new element the turmoil
has somewhat contributed to specifying the relevant areas in which this interplay should be
reinforced.
First, in the area of monitoring and assessing risks to financial stability, central banks can
benefit from extended access to supervisory information and intelligence to better
understand risks and vulnerabilities for the financial system as a whole. At the same, there is
clearly the issue, of how to translate the outcome of the financial stability assessment into
supervisory action. In principle one cannot but agree that there should be a way through
which, if the central bank identifies serious risks to financial stability, the competent
supervisor should be able to act. Therefore, communication needs to go both ways: from the
central bank to supervisors and vice versa within the respective legal framework.
Second, in the area of liquidity, there is clearly room for a closer interplay between the two
authorities. Central banks would benefit from enhanced access to supervisory information
and intelligence for its role of maintaining stable money markets. To that end for instance
access to information on banks' liquidity contingency planning funds would be useful. At the
same time, supervisors would benefit from information available at central banks stemming
from their role in the money markets.
Third, in the area of crisis management and resolution, depending on the nature and feature
of the crisis, there is a need for close interaction between the two authorities. Provision of
Emergency Liquidity Assistance is a clear point in case where central banks need
supervisory information for decision-making. In this field, I believe that an important step
forward is represented by the recent MoU on financial stability arrangement signed by the EU
central banks, supervisors and ministries of finance in June 2008.
Finally, referring more to the supervisory domain but still linked to the central bank interest,
the turmoil has evidenced the need for strengthening the macro-prudential dimension of
regulation and supervision. This means the regulatory and supervisory requirements should
be able to ensure adequate capital and liquidity buffers throughout the economic cycle. In
this regard, the actual impact of the new capital adequacy regime under of Basel II will have
to be monitored very closely.