Central Bank Involvement in Macro-Prudential Oversight

This working paper addresses the institutional arrangements for the performance of macro-prudential oversight of the financial system in the European Union with focus on the functions of the central banks. The first section of the paper outlines the evolution of the EU's supervisory arrangements which led to the establishment of the European Systemic Risk Board (ESRB) as the body responsible for EU macro-prudential oversight. This section also describes the ESRB's institutional links to the European System of Central Banks (ESCB), which comprises the European Central Bank (ECB) and the national central banks (NCBs) of the EU Member States. In the second section, the paper describes the supporting role played by the ECB and the NCBs in the performance of the ESRB's functions. Such support is provided at each stage of the macro-prudential oversight process, which comprises: (i) risk surveillance by the collection of market data; (ii) risk identification and evaluation by analytical reviews of the information collected; and (iii) risk mitigation by actions such as issuing risk warnings and recommendations. In the third section, the paper's analysis of the institutional arrangements at the EU level is complemented by a review of the main current models for cooperation at the national level between national macro-prudential authorities and their respective NCBs. In conclusion, the paper points to the need to establish robust legal safeguards to ensure the effectiveness of central bank involvement in the performance of macro-prudential oversight of the financial system, including establishing reliable data collection channels and respect for central bank independence