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Edited by Costanza A. Russo, Rosa M. Lastra and William Blair
Markus Krajewski and Rhea Tamara Hoffmann
This chapter examines the provision of emergency financial support to credit institutions in light of the European Banking Union (EBU). Emergency liquidity provision can be regarded as an integral component of both EBU pillars, namely the Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM).2 The first sets up a common supervisory system for credit institutions. The second introduces a procedure for the orderly winding-up of credit institutions.
The chapter begins with the Bank of Russia’s origins, from the waning days of the Soviet Union through the passage of the revised Law on the Central Bank in 1995. It then explores the international central banking community’s pivotal role in the Bank’s transformation, focusing on monetary policy and banking supervision. The Bank of Russia’s embrace of central bank independence, price stability, and commercial bank reform emerged sequentially, based on both persistent community exposure and adverse experience. I end by discussing how the Bank of Russia dealt with the fallout from the global crisis and the Russian government’s financial nationalist turn, particularly since the Crimean annexation and the imposition of the Western sanctions regime. The Putin government has increasingly put the Bank of Russia in a position where its liberal, internationalist inclinations and its national responsibilities clash.
Kern Alexander and Rosa María Lastra
The chapter examines recent international regulatory reforms that emphasise macroprudential principles and objectives for banking regulation and supervision. The UK provides an interesting example of a jurisdiction that has moved from a largely microprudential framework of regulation to one that combines a macroprudential framework of regulation and policy that aims to control systemic risk with judgment-based micro prudential supervision. The chapter discusses the evolving definition of banks and the necessity for law and regulation to keep pace with financial innovation and evolving market structures. The chapter argues that although UK regulatory reforms have taken important steps in coordinating macroprudential regulation and policy with microprudential regulation, challenges remain in monitoring systemic risks across the financial system and in addressing risks posed by the shadow banking system.
David Bholat and Robin Darbyshire
This chapter examines the important but not often discussed issue of accounting in central banks. Central banks are not-for-profit enterprises that pursue public policy objectives. Our chapter therefore highlights the distinguishing factors that make the financial statements of central banks different to those produced by other bodies. We begin by explaining why central banks produce financial statements. We then discuss a variety of specific topics in central bank accounting. In terms of balance sheet items, we discuss banknotes, shareholders’ equity, gold, foreign exchange and financial instruments. Our discussion of the income statement then centres on profit recognition and distribution which are of significance in the relationship between the central bank and the Finance Ministry.
The author provides a critical description of the forays into unconventional monetary policy measures by the European Central Bank (ECB) and discusses the court case on the ECB’s competences on one such unconventional measure, Outright Monetary Transactions (OMT). The legal basis of the non-standard measures adopted since the beginning of the crisis, from collateral widening through negative interest, forward guidance and long-term refinancing to quantitative easing, are discussed, with a special focus on the situation for (banks in) the EU Member States whose governments have been financially supported (e.g., Greece). The author finds that the ECB’s mandate has been stretched, but not too far, in the crisis circumstances although, in normal times, the economic-policy role taken might be ultra vires. The ECB itself should assume the role of provider of Emergency Liquidity Assistance (ELA) now that banking union has given it wide-ranging prudential powers, notably over the most significant banking groups in the Euro Area.
Andrew G Haldane
There has been a huge amount of research on how human decision-making is affected by cognitive biases. There has also been a huge volume of research on central bank decision-making. Yet the psychology of central bank decision-making has largely been unexplored. The evolution of central bank policy frameworks over recent years can be seen as an attempt to make them robust to psychological biases. This is illustrated using the example of the Bank of England’s post-crisis policy framework.