WRITTEN QUESTION E-1243/01

by Juan Naranjo Escobar (PPE-DE) to the Commission

(26 April 2001)

Subject: Relations between the ECB and central banks in the eurozone

In the context of the debate in various Member States, including Germany, Belgium and Austria, where governments are discussing the possibility of creating either a supervisory body independent of their respective central banks, or a single supervisory body for the banking, securities and insurance sectors, the European Central Bank has defended the financial supervisory role played by the central banks in the eurozone. In the opinion of the ECB, the fact that the central banks of eleven countries that share the same currency have lost control over the creation of money does not imply a conflict between their new banking supervisory tasks and their monetary policy functions.

What is the Commission's position with regard to the possibilities being discussed by these Member States? What is the likelihood, in the future, of conflicts of interest or centres of concentration of power, should the central banks adopt less rigorous policies than are necessary to achieve the objective of price stability in the event of a crisis in the banking system?

What steps is the Commission taking to encourage both the creation of links between the ECB and the central banks of the eurozone, and other means of cooperation and information exchange between these institutions?

Answer given by Mr Solbes Mira on behalf of the Commission

(2 July 2001)

The debate on the relationship between the central banking function and the supervisory function has a long history. The debate revolves around differing views on the likely interactions between a central bank's role as a supervisor and its role in conducting monetary policy. On one side,

it is argued that the knowledge acquired by a central bank in its day-to-day dealings with the banking system enhances its effectiveness as a financial supervisor. On the other side, it is argued that responsibility for the smooth functioning of the financial system (including the possible need to provide emergency lending assistance) risks interfering with the central bank's freedom of action in the conduct of monetary policy.

The fact that the two models - supervision independent from the central bank and supervision within the central bank - are represented in the Community, suggests that the arguments for or against either model are not conclusive. Nevertheless, it is the case that the introduction of the euro, combined with processes of globalisation, technological change and deregulation, is leading to rapid and on-going changes in the financial markets. As a result, the supervisory framework must be kept under constant review to ensure that it remains appropriate.

In this context, two reports have been made by the Economic and Finance Committee to Finance Ministers over the last year - the first on crisis prevention and the second on crisis management. Both reports have stressed that, while the existing institutional arrangements have served well, the practical functioning of those arrangements must be enhanced. A series of recommendations have been made to that effect. Many of these relate to the need for improved co-ordination and exchange of information among the relevant authorities (central banks, Ministries, and supervisory authorities) at cross-sectoral, national, and European levels.

Priority must now be given to ensuring that these recommendations are implemented.

In the longer-term, however, a more far-reaching rationalisation of current arrangements may be necessary. Without pre-judging the model of supervision which may ultimately prove desirable, the issue of whether the stability of an integrated Community financial system can best be assured by having a single forum, rather than several, for co-ordination and information exchange must be studied carefully.