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6. Conclusion in:

Stanyo Dinov

Central Banks as a Bank Supervisor, page 91 - 96

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

2. Edition 2018, ISBN print: 978-3-8288-4110-9, ISBN online: 978-3-8288-6962-2, https://doi.org/10.5771/9783828869622-91

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

Tectum, Baden-Baden
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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.213 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 econ‐ omy.214 However, the complexity of the issue has the disad‐ vantage related to the contrary interest between monetary policy and banking supervision.215 By conducting mone‐ tary and supervising functions the CBs became super-au‐ thorities with many responsibilities, what leads not only to growing bureaucracy, but also to concentration, instead of 6. 213 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. 214 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. 215 Alexander Wellerdt (10), 88. The interest rate reductions, loan programmes, the purchase of asset-backed securities or govern‐ ment bonds can lead to the recapitalisation of credit institutes, which are classified to be in risk of default by the banking super‐ vision. Otherwise, the high interest rate brings down the infla‐ tion, but cause recession and high unemployment rate. 91 counterbalancing the power between different agencies.216 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.217 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 dif‐ ferent 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 216 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, be‐ tween prudential supervision and the conduct of monetary poli‐ cy. 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. 217 See Charles Goodhart/Dirk Schoenmark, (17), 548. For that rea‐ son, for instance, the Federal Reserve Bank of New Zealand (1994) decided to reduce its involvement in a banking supervi‐ sion. 6. Conclusion 92 rate and the reserve operations; and the FOMC, which performs the open market operations.218 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. The model of prudential regulation for big and small financial institu‐ tions which is devided between the PRA and the FCA is similar to those between the ECB and the EU-NCAs. The relation between ECB and EBA could be compared with this between the FPC of BoE and the PRA, considering the fact that PRA is a subsidiary of the BoE. Beside this, the EU and the USA have similarity regarding banking, securi‐ ty and insurance authorities on US-federal/EU-suprana‐ tional and national level. Oppositely, in the EU, the ECB- General Council has the final say in monetary and supervi‐ sory decisions.219 However, the specificity of the European supervision model is that, it is divided from different integrated inten‐ sity between the ESRB, the ECB, and the national CBs. Furthermore, the ECB is responsible only for the banking supervision, whereas the BoE and the Fed cover the over‐ sight for the whole financial sector. Nevertheless, there are proposal in the EU for establisihing a Capital Market 218 FOMC. 219 According Article 26(6) SSM-Regulation the decision of the Su‐ pervisory Board come into force until the Governing Council does not object them. 6. Conclusion 93 Union until 2019.220 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 BoE221 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.222 Through the Treasury in the UK and through the the COP in the US the parlia‐ ments have a control option of the oversight in the finan‐ cial systems. Differently, according to Article 130 TFEU, Article 7 ESCB-Statue, the ECB is a politically,223 organi‐ 220 Cf. European Commission, Capital movements, ˂https://ec.euro pa.eu/info/business-economy-euro/banking-and-finance/financ ial-markets/capital-movements_en> accessed 17 May 2017. See also: ECB Synergee between banking union and capital market union, ˂https://www.ecb.europa.eu/press/key/date/2017/html/e cb.sp170519_1.en.html> accessed 19 May 2017. Because of the single market, the will be a synergee between these two policy iniciative. Banking union increases the resilience of the banking sector, facilitating sector consolidation and enhancing the cross border credit market. It expands its financing capabilities and reduces intermediation costs. Capital markets union contributes to diversify sources of finance for EU national economies and creates a risk-sharing channel that helps smooth out incomes and consumption via cross-border holdings of financial assets. 221 The BoE through the MPC can receive orders from the Treasury "in public interest" and by "extreme circumstances". 222 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. 223 The political independence of the ECB is guaranteed through the TFEU and ESCB-Statue only regarding its primary task: maintaining the price stability. 6. Conclusion 94 cally, functionally and financially independent authority of sovereign MSs.224 Consequently, along with the similarity of their dual monetary/supervisory function, the three CBs have differ‐ ences conditioned from the characteristics of their regula‐ tory systems. The advantages and the disadvantages of one or another system depend on their individual circum‐ stances. However, weighing up the pros and cons of differ‐ ent approaches, it could be assumed that a possible alterna‐ tive will be a combination of an integrated approach, with separate authorities for the monetary policy and supervi‐ sion. 224 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 re‐ moved procedure its governing bodies. The functional indepen‐ dency 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 95

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Abstract

Stanyo Dinov analyses and compares the three most advanced and most influential financial systems in the world, their structure, models of regulation and their actual financial legislation against the background of the global financial crisis in 2007. After a brief introduction, the first chapter is devoted to the function of the Central Banks and the two main divisions theories about the role of the CBs, namely their responsibility for monetary policy, or for monetary policy and banking supervision. The work also displays the four existing regulative approaches to financial supervision: the Institutional, the Functional, the Integrated and the Twin Peaks. The main part represents and compares the Central Banks and their regulatory structure, starting with the oldest one, the BoE. The benefits and the drawbacks of the one or the other system are outlined. In the conclusion, the most important results are presented and an ideal modal solution is suggested.