Handbook of Central Banking, Financial Regulation and Supervision
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Handbook of Central Banking, Financial Regulation and Supervision

After the Financial Crisis

Edited by Sylvester Eijffinger and Donato Masciandaro

This stimulating and original Handbook offers an updated and systematic discussion of the relationship between central banks, financial regulation and supervision after the global financial crisis.
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Chapter 8: New Advantages of Tying One’s Hands: Banking Supervision, Monetary Policy and Central Bank Independence

Lucia Dalla Pellegrina, Donato Masciandaro and Rosaria Vega Pansini


Lucia Dalla Pellegrina, Donato Masciandaro and Rosaria Vega Pansini Introduction In response to the 2007–2008 financial crisis, different countries and regions – the European Union, Germany, Ireland, United Kingdom and the United States, among others – are either implementing or evaluating the possibility of introducing reforms aimed at reshaping the role of their central banks in banking supervision. On July 2010, for example, US President Barack Obama signed into law the Dodd-Frank Act, which is considered the most important US financial regulation overhaul since the Great Depression. A rethink of the Fed has been part of the broad financial legislation restyling. Despite the fact that during the discussion of the bill US lawmakers debated on the possibility of restricting some of the Fed’s regulatory responsibilities (supervision of small banks, emergency lending powers), as well as to increase the political control on the central bank with changes in its governance (congressional audits of monetary policy decisions, presidential nomination of the New York Fed Presidents), the Dodd-Frank law ended up increasing the powers of the Fed as a banking supervisor. In Europe, policymakers are moving to finalize reforms concerning the extent of the central bank involvement in supervision, both at international and at national levels. 208 New Advantages of Tying One’s Hands 209 In 2009, the European Commission enacted a proposal inviting the establishment of a European Systemic Risk Council (ESRC) for macro prudential supervision which should be dominated by the ECB. Among the individual EU members, in 2008 the German grandcoalition government...

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