Towards a Macroprudential Policy in the EU

The financial crisis has led to the reexamination of policies for macroeconomic and financial stability and the development of macroprudential policies (MAP) in different countries. The aim of this paper is to analyze the state of art of macroprudential policies with specific reference to the case of the European Union and the architecture to-be with the introduction of the Banking Union. To this end, the first step is to focus on the institutional framework of MAP: relations and/or conflicts with other policies (first and foremost monetary and microprudential); agencies involved, their mandate, accountability and governance issues. Thereafter the operative framework of MAP is analyzed: definition of objectives (intermediate and final) and of the most suitable set of instruments, implementation of the decision process and evaluation of the effectiveness of the policies adopted. The second part the paper deals with the introduction of MAP in the European Union and its first working, with the definition of intermediate and final targets and toolkit. As a consequence of the crisis, since 2011, the EU started a process towards a greater integration of the supervisory function, following the De Larosiere Report, with an institutional framework based on a microprudential pillar (the European System of Financial Supervisors - ESFS) and a macroprudential pillar (the European Systemic Risk Board – ESRB). The MAP architecture based on the working of ESRB and of the National Competent Authorities (NCA) is now undergoing a revision process due to the introduction of the Single Supervisory Mechanism (SSM) and the new role of the ECB as the supervisory authority with micro and macro supervisory responsibilities on financial intermediaries in the Euro area (18+). The final part of the paper focuses on the main issues facing the European supervisory architecture to-be: the organization of MAP within the SSM and the definition of the role of the ECB as far as macroprudential policy is concerned MAP (decentralized model vs centralized model); the implications of the introduction of the SSM in the 18 countries of the euro area for the role of the ESRB, whose mandate is a limited one in scope, but covering all the financial institutions of the whole EU.