In particular, it features a flexible and shock-dependent medium-term horizon, meaning that monetary policy does not  http://www.ecb.europa.eu/press/key/date/2017/html/sp170330.en.html[03.04.2017 15:53:14]  Central bank independence revisited  automatically respond to shocks, unless there is a risk of these shocks becoming embedded in inflation expectations. And it also features a monetary pillar. Under this pillar, trends in credit markets are monitored, and factored into policy decisions, even when inflation has not moved. [57] As a built-in feature, this ensures a certain leaning-againstthe-wind attitude in policymaking. However, although the ECB’s two-pillar monetary policy strategy incorporates financial stability considerations, macroprudential policy cannot seek to impose its needs on the monetary pillar. Against this background, one may wonder why microprudential supervision was not considered sufficient to address financial stability issues. One reason is that microprudential supervision is aimed at ensuring the soundness of individual financial institutions by mitigating their vulnerability to idiosyncratic risks. However, setting up a regulatory framework which guarantees the soundness of individual banks does not automatically ensure the soundness of the financial system as a whole. Financial institutions’ inter-connectedness contributes to generating systemic risk, even when such institutions, taken in isolation, seem sound. Moreover, since financial institutions tend to engage in similar investment strategies both in upturns and downturns of the financial cycle, over time common exposures to similar sets of risks can create financial imbalances or credit disruptions, leading to pro-cyclicality. When a shock surfaces, interconnections may contribute to amplifying expansionary and contractionary phases of the financial cycle.

To pursue that objective, the Treaty assigned to the Eurosystem,  http://www.ecb.europa.eu/press/key/date/2017/html/sp170330.en.html[03.04.2017 15:53:14]  Central bank independence revisited  which is composed of the ECB and the NCBs of Member States that have adopted the euro, the core task of defining and implementing monetary policy, together with a number of core central banking tasks in the areas of foreign exchange operations, foreign reserves management, the smooth operation of payment systems, authorising the issuance of euro banknotes, and the collection of the statistical information necessary to undertake these tasks. [8] With respect to the prudential supervision of credit institutions and the stability of the financial system, the ESCB is mandated to contribute to the smooth conduct of policies pursued by the competent authorities. [9] In addition, Article 127(6) of the Treaty permits the Council to confer specific tasks upon the ECB concerning the prudential supervision of credit institutions and other financial institutions with the exception of insurance undertakings. That provision was activated recently through secondary legislation establishing the Single Supervisory Mechanism (SSM),[10] which confers tasks on the ECB relating to the prudential supervision of credit institutions. Article 130 of the Treaty sets out the requirements of central bank independence. While Article 130 also applies to NCBs, my focus here today will be on the ECB.