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6. Conclusion in:

Stanyo Dinov

Central Banks as a Bank Supervisor, page 89 - 92

A Comparison of the Function of the Bank of England, the Federal Reserve and the European Central Bank

1. Edition 2017, ISBN print: 978-3-8288-3993-9, ISBN online: 978-3-8288-6765-9, https://doi.org/10.5771/9783828867659-89

Series: Wissenschaftliche Beiträge aus dem Tectum Verlag: Rechtswissenschaften, vol. 90

Tectum, Baden-Baden
Bibliographic information
Conclusion The emergency of the global financial crisis has lead to a new approach of thinking on all issues related to monetary policy and banking supervision.195 The view of separation of both policies has been abolished and through the new reform-agenda the CBs became involved in these both functions. An advantage of this integrated approach is that CBs can consider the effect of their action of the hole economy.196 However, the complexity of the issue has the disadvantage related to the contrary interest between monetary policy and banking supervision.197 By conducting monetary and supervising functions the CBs became super-authorities with many responsibilities, what leads not only to growing bureaucracy, but also to concentration, instead of 6. 195 Howard Davies, David Green, reviewed by Rakesh Mohan, ‘Banking on the Future: The Fall and Rise of Central Bankingʼ (2011) Journal of Economic Literature, 730, 733. 196 Example is, the Fed actions by the Great Depression in 1929 when fixing the capital market with high interest rate. However, the effect on the economy was worse. Ben S. Bernanke (7), 21, 23. The Fed did not supply the market with liquidity and do not act as a LLR. 197 Alexander Wellerdt (10), 88. The interest rate reductions, loan programmes, the purchase of asset-backed securities or government bonds can lead to the recapitalisation of credit institutes, which are classified to be in risk of default by the banking supervision. Otherwise, the high interest rate brings down the inflation, but cause recession and high unemployment rate. 89 counterbalancing the power between different agencies.198 Another issue is that some of the supervisory functions overlapped with the other authorities. Consequently, it has been argued that the reputation of CB is more likely to suffer than to benefit from the joint conduct of these opposed policies.199 The three CBs which have been discussed in this piece represent different approaches of regulation. For instance, the UK supervisory function is separated between two different regulators. By the US functional approach there are: multiple authorities, different markets and multiple laws, oppositely to the EU model with single authority, single market and single law. In this regard, the UK "twin picks model" is between these two approaches, more closer to the EU model. By comparing the three systems, it can be seen that the CB functions are organised in a different way. For example, a characteristic feature of the US financial system is that some of the Fed supervisory functions are transferred to other outside the Fed authorities. The Fed monetary policy is divided between the FRB, which conducts the discount 198 Whereas, the UK twin peaks approach to financial regulation runs the risk that one conflict of interest, between conduct-ofbusiness and prudential supervision, is replaced by another, between prudential supervision and the conduct of monetary policy. In the US, the latter conflicts do not appear to have been a major concern, where the Fed has responsibility for monetary policy and the supervision. 199 See Charles Goodhart/Dirk Schoenmark, (17), 548. For that reason, for instance, the Federal Reserve Bank of New Zealand (1994) decided to reduce its involvement in a banking supervision. 6. Conclusion 90 rate and the reserve operations; and the FOMC, which performs the open market operations.200 The US-banking oversight is shared between the FRB and the FSOC. In the UK, the supervision is split inside the BoE between the FPC and PRA. The newly created FCA outside the Bank is responsible for market integrity and consumer protection, what shows some similarity to the US-model. Oppositely, in the EU, the ECB-General Council has the final say in monetary and supervisory decisions.201 However, the specificity of the European supervision model is that, it is divided from different integrated intensity between the ES- RB, the ECB, and the national CBs. Furthermore, the ECB is responsible only for the banking supervision, whereas the BoE and the Fed cover the oversight for the whole financial sector. Concerning the RRP, in the UK and the US, the CB have to consult with the Treasury, while in the EU the final decision is by the European Commission. Therefore, by the BoE202 and the Fed, the Treasury still have strong influence of their policy. Both CBs have to consult with the Treasury for monetary, supervisory policy, RRP and by acting as a LLR.203 Differently, according to Article 130 TFEU, Article 7 ESCB-Statue, the ECB is a po- 200 FOMC. 201 According Article 26(6) SSM-Regulation the decision of the Supervisory Board come into force until the Governing Council does not object them. 202 The BoE through the MPC can receive orders from the Treasury "in public interest" and by "extreme circumstances". 203 S 13(3)(B) FRA. Furthermore, regarding the independency, the Fed through its chairman has to give a quarter annual report for the US-Congress. 6. Conclusion 91 litically,204 organically, functionally and financially independent authority of sovereign MSs.205 Consequently, along with the similarity of their dual monetary/supervisory function, the three CBs have differences conditioned from the characteristics of their regulatory systems. The advantages and the disadvantages of one or another system depend on their individual circumstances. However, weighing up the pros and cons of different approaches, it could be assumed that a possible alternative will be a combination of an integrated approach, with separate authorities for the monetary policy and supervision. 204 The political independence of the ECB is guaranteed through the TFEU and ESCB-Statue only regarding its primary task: maintaining the price stability. 205 Rosa M. Lastra, ʻEvolution of the European Central Bankʼ, (2011) The European Union Law Issue, 1260, 1278 f. Organically is evidenced by number of guarantees of appointment or removed procedure its governing bodies. The functional independency is guaranteed through Article 130 TFEU, as well as OLAF case, judgment of the European Court C-11/00 from 10 July 2003, I-7221. Its staff is also elected with fixed term. Financially, the ECB has its own budget and the ECB is prohibit to finance public sector deficit, according 21(1) ESCB-Statue. The political independence of the ECB is only regarding its primary task: maintaining the price stability. 6. Conclusion 92

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Abstract

As a result of the Global Financial Crisis in 2007, the financial and bank supervision in many countries was reformed. Stanyo Dinov investigates the Central Banks of the three advanced financial systems – the UK, the USA and the EU – and the questions related to their supervisory role. All three banks historically and symbolically represent different legal systems, influenced by each other and comparable to one another. They all represent the model of free market economy, whose roots began with the idea of economic liberalism and wellbeing from Adam Smith. The legislators in the UK, the USA and the EU have chosen solutions that are in some ways similar though in other ways different to reform these financial systems. Therefore, on the basis of their historical development, the author presents and compares the post-crisis reforms by these three systems, with the main focus on the CBs’ role as banking supervisor. Existing problems are discussed and some alternative solutions are presented.