№286. Monetary Policy and Banking Supervision: Coordination instead of separation
№286. Monetary Policy and Banking Supervision: Coordination instead of separation

Author(s): Daniel Gros, Thorsten Beck
Subject(s): Governance, Economic policy, EU-Accession / EU-DEvelopment, Financial Markets
Published by: CEPS Centre for European Policy Studies
Keywords: Monetary Policy and Banking Supervision; Chinese walls; Governing Council;
Summary/Abstract: A strict separation, or ‘Chinese walls’, between the supervisory and monetary policy arms of the European Central Bank is not needed. The economic literature is not unanimous on this issue and we argue that a strict separation of supervision and monetary policy is not desirable during a financial crisis when thes ystemic stability of the financial system represents the biggest threat to a monetary policy that aims at price stability. The key problem hampering the ECB today is that it lacks detailed information on the state of health of the banking system, which is often highly confidential. Chinese walls would not solve this problem.

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