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dc.creatorGoldmann, Matthias
dc.date.accessioned2021-09-28T09:31:00Z
dc.date.available2021-09-28T09:31:00Z
dc.date.issued2017-12-01
dc.identifier.urihttps://fif.hebis.de/xmlui/handle/123456789/2280
dc.description.abstractThis paper analyzes the relationship between monetary policy and prudential supervision in the Banking Union. There is no uniform global model regarding the relationship between monetary policy on the one hand, and prudential supervision on the other. Before the crisis, EU Member States followed different approaches, some of them uniting monetary and supervisory functions in one institution, others assigning them to different, neatly separated institutions. The financial crisis has underlined that monetary policy and prudential supervision deeply affect each other, especially in case of systemic events. Even in normal times, monetary and supervisory decisions might corroborate each other, or get into conflict. After the crisis, some jurisdictions have moved towards a more holistic approach under which monetary policy takes considerations of financial stability into account, while supervisory decisions pay due regard to price stability. The Banking Union puts prudential supervision in the hands of the European Central Bank (ECB), the institution responsible for monetary policy. Nevertheless, at its establishment there was the political understanding that the ECB should follow a policy of meticulous separation in the discharge of its different functions. This raises the question whether the ECB may still pursue a holistic approach to monetary policy and prudential supervision, respectively. On the basis of a purposive reading of the monetary policy and supervisory mandates of the ECB, the paper answers this question in the affirmative. Effective monetary policy (or supervision) requires financial stability (or price stability). Moreover, without a holistic approach, the SSM Regulation is more likely to provoke the adoption of mutually defeating decisions by the Governing Board. The reputation of the ECB would suffer considerably under such a situation – in a field where reputation is of paramount importance for effective policy. As any meticulous separation between monetary and supervisory functions turns out to be infeasible, the paper explores the reasons. Parting from Katharina Pistor’s legal theory of finance, which puts the emphasis on exogenous factors to explain the (non)enforcement of legal rules, the paper suggests a legal instability theorem which focuses on endogenous reasons, such as law’s indeterminacy, contextuality, and responsiveness to democratic deliberation. This raises the question whether the holistic approach would be democratically legitimate under the current framework of the ESCB. The idea of technocratic legitimacy that exempts the ECB from representative structures is effectively called into question by the legal instability theorem. This does not imply that the independence of the ECB should be given up, as there are no viable alternatives to protect monetary policy against the time inconsistency problem. Rather, any solution might benefit from recognizing the ECB in its mixed technocratic and political shape as a centerpiece of European integration and improving its transparency, responsiveness, and representativeness without removing its technocratic character.
dc.rightsAttribution-ShareAlike 4.0 International
dc.rights.urihttp://creativecommons.org/licenses/by-sa/4.0/
dc.subjectFinancial Institutions
dc.subjectMacro Finance
dc.titleUnited in Diversity? The Relationship between Monetary Policy and Banking Supervision in the Banking Union
dc.typeWorking Paper
dc.source.filename178_SSRN-id2975998
dc.identifier.safeno178
dc.subject.keywordsbanking union
dc.subject.keywordsmonetary policy
dc.subject.keywordsfinancial stability
dc.subject.keywordssingle supervisory mechanism
dc.subject.keywordsdemocratic legitimacy
dc.subject.topic1cypriot
dc.subject.topic1padoaSchioppa
dc.subject.topic1sch
dc.subject.topic2kashyap
dc.subject.topic2liquidity
dc.subject.topic2holistic
dc.subject.topic3konflikt
dc.subject.topic3siekmann
dc.subject.topic3bahn
dc.subject.topic1nameStability and Regulation
dc.subject.topic2nameSystematic Risk
dc.subject.topic3nameCorporate Governance
dc.identifier.doi10.2139/ssrn.2975998


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