yves mersch : monetary policy and financial stability under one roof keynote speech by mr yves mersch, member of the executive board of the european central bank, at the 6th policy roundtable of the european central bank : “ the future of global policy coordination ”, frankfurt am main, 6 september 2013. * * * ladies and gentlemen, it is my pleasure to join you at the 6th policy roundtable of the ecb, which this year focuses on “ the future of global policy coordination ”. i will be speaking about the interaction of a particular set of policies, namely monetary, micro - prudential and macro - prudential policy. but rather than discussing the global dimension or replicating the discussion at jackson hole, i will restrict myself to the changes taking place under the roof of the ecb : the ecb taking over responsibility for elements of micro and macro - prudential supervision in the euro area. having the financial stability function under the roof of the central bank is of course nothing new. it is almost exactly hundred years since that the federal reserve act was signed into law. according to the regulation, federal reserve banks were created “ to furnish an elastic currency, to afford means of rediscounting commercial paper ” – and notably – “ to establish a more effective supervision of banking ”. this combining of monetary and supervisory functions reflects the fact that, for monetary policy authorities, financial stability is obviously key. a stable financial system with sound and solvent banks supports the smooth transmission of monetary policy and ultimately contributes to macroeconomic stability. this is particularly relevant for the euro area, where banks play and crucial role in providing financing to the real economy, most notably to smes. conversely, financial imbalances can be a genuine threat to price stability, in addition to being extremely costly from a macroeconomic perspective. but in my remarks today i would like to focus on a specific aspect of these interactions – that is, between monetary and macro - prudential policy. the key point i would like to make is that this interaction should be stronger than in the micro - prudential area, where the impending regulation imposes a separation between monetary policy and supervision. the reason for this is simple. while micro - prudential policy focuses on the stability of individual institutions, both monetary and macro - prudential policy take a more systemic perspective and aim ultimately at system - wide stability. let me explain the interaction between these two policies in more detail. in many ways – objectives

”, working paper 17736. ecb ( 2001 ) : “ the role of central banks in prudential supervision ”. see cassola, durre, and holthausen ( 2011 ) : “ monetary policy operations : experiences during the crisis and lessons learnt ”, proceedings of the sixth ecb central banking conference “ approaches to monetary policy revisited – lessons from the crisis ”. bis central bankers ’ speeches • second, there is a close relationship between micro - prudential control of individual financial institutions and the assessment of risks to the overall financial system, which constitutes the central bank ’ s macro - prudential responsibility. even in those countries where the central bank is not involved in individual bank supervision, the central bank ’ s responsibility for systemic stability is unchallenged. this is one reason why the european systemic risk board ( esrb ) that was established in 2010 with a mandate for macro - prudential oversight, is chaired by a central banker ( the president of the ecb ). the assessment of systemic risk would quite naturally be facilitated if supervisory information about individual institutions was used. • further information - related synergies exist between the supervision of banks and the oversight of payment systems, which is a task usually allocated to the central bank. the ecb, for instance, is responsible for the oversight of all large - value payment systems operating in the euro area. moreover, it is the owner of the largest of those systems, the target2 system. • fourth, central banks have a lot of expertise on the financial sector, because of their role in monetary policy and oversight as well as their general interest in financial stability. these roles imply a constant monitoring of different segments of the financial market in order to assess the transmission of monetary policy impulses, regular interactions with counterparts to their monetary operations, and operational and oversight activities in large - value payment systems. such knowledge is likely to be crucial in situations of financial stress, and enables central banks to be able to assess such situations more quickly and profoundly than other institutions with different mandates and functions. thus, if a central bank were entrusted with supervisory powers, it would be able to react relatively quickly in case of an imminent banking failure. 10 this ability would be particularly relevant in financial crisis times, in which a number of institutions would be on the brink at the same time, but in which there is great uncertainty about the depth and impact of the crisis in general, and about individual banks ’ solvency in particular. such a situation would