recommendation, and reprimanding process not be independent of political influences from the countries that could in fact be the source of the next European financial crisis?

Third, the Board is constrained in assessing risks and making timely recommendations in that it does not have uninhibited direct access or independent authority to obtain information on individual financial institutions or financial systems – it must request this information from the appropriate national authorities even involving pan-European institutions. This could make it difficult to come to timely assessments in the early stages of a buildup of imbalances and a crisis.<sup>31</sup> Despite these uncertainties and challenges, and as noted, the ESRB has the authority to make policy recommendations. When it identifies a risk or vulnerability, it can make a formal recommendation about what needs to be done to reduce the risk and vulnerability and who should act. While a member country may not agree with an ESRB assessment and recommendation, it cannot simply ignore the call for action. The member state is required to express why it disagrees with the ESRB‘s assessment and is not taking the recommended action.

This could prove to be a significant improvement over the status quo even though recommendations are not binding. It is possible that in some cases this weakness could be overcome; Art. 99 of Community law provides the European Council the authority to make similar recommendations on the basis of an assessment of the Economic and Finance Committee, where the ECB is represented. An improvement over the status quo could come about through a strengthening of the role of central banks in the ESRB. It is not clear that this will make a difference; Art. 99 was not called on to encourage some member states to take policy actions during the crisis that were deemed necessary.

Despite the absence of binding policy instruments, it is possible that the ̳moral authority‘ of the ESRB would also help to improve outcomes. Among the voting members, the ECB has an explicit mandate to oversee the smooth functioning of the Target payments system and has several years of experience in assessing sources of risks and vulnerabilities within the context of its semi-annual publication the Financial Stability Review. In addition, other voting members from national central banks also having supervisory authority will be part of the assessment process. They have direct access to microprudential information on systemically important financial institutions and supervisory powers to affect change. By virtue of being on the Board, they will learn about the macroprudential risks and vulnerabilities and thereby be better informed to supervise financial institutions.

> 31 European Commission (2009a) states, ―The ESRB should therefore have access to all the information necessary to perform its duties while preserving the confidentiality of these data. The ESRB will be able to rely on the broad set of data already collected through the Eurosystem by the ECB on Monetary and Financial Institutions. Additionally to fulfill its tasks and ensure the necessary consistency between the micro-supervisors and the ESRB, the ESRB, through its secretariat, will also be able to request the ESAs [European Supervisory Authorities] to provide information in summary or collective form. Should this information be not available (or not made available), the ESRB will have the possibility to request data directly from national supervisory authorities, national central banks (NCBs) or other authorities of Member States. The regulation furthermore creates a general obligation on the ESAs, the NCBs and the Member States to provide to the ESRB all the information needed for the fulfillment of its tasks, thus guaranteeing a wide access to the data needed for the macro-prudential analysis.‖

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