ECB largely supports Commission’s proposals for ESRB

The European Central Bank says in an official opinion, dated March 2, that it is largely in favour of proposals aimed at changing the governance of the European Systemic Risk Board, an organisation to which it is very closely linked.

The European Commission’s proposals, published on November 27, 2017, would make the ECB president the permanent head of the ESRB, which monitors systemic financial risk in the entire European Union, including non-eurozone countries. They would also strengthen the role of the ESRB’s secretariat.

The EC’s proposals would create “a permanent link between the ECB president and the ESRB chair”, notes the ECB.

The European Union regulation that created the ESRB ordered that the first president of the ESRB should be the president of the ECB, for a five-year term. But it left open the question of who might subsequently lead the ESRB. Mario Draghi has served as the ESRB’s chair since becoming ECB president in November 2011.

Under the proposals, the ESRB’s general board would assess the final candidates for head of the organisation’s secretariat and inform the European Parliament and the European Council of national governments.

The ECB says in the official opinion that it “generally supports the proposal to raise the profile of the head of the ESRB secretariat”, but that the proposals should “be without prejudice to the ECB’s ultimate responsibility to appoint the head of the ESRB secretariat”.

The EC also proposes that the head of the ECB’s supervisory mechanism should be given a seat on the ESRB’s general board, with voting rights, and on its steering committee. A person nominated by the ECB’s supervisory head should also sit on the ESRB’s advisory technical committee, says the EC.

The central bank responded that changes to the membership of the ESRB’s board and senior committees should “ensure an appropriate institutional balance between the voting and non-voting rights” of supervisors from countries taking part in the eurozone’s banking union.

The proposals would also give the ESRB’s chair and steering committee the power to entrust “specific tasks” to the head of the secretariat. The ECB says the organisation “should remain able to respond flexibly to address potential vulnerabilities in the financial system”. It also notes that the head of the ESRB secretariat “already carries out the majority of the tasks listed”.

The ECB says it “generally supports” another proposal by the EC “to transmit ESRB warnings and recommendations to the European Parliament”. But it warns that “all bodies must ensure strict confidentiality and professional secrecy in order to mitigate potential risks stemming from a premature or undue disclosure of market-sensitive information”.

De Larosière report

The ESRB was created by a November 2010 EU regulation and started operations the following month. It was set up following a report by a team led by former Banque de France governor Jacques de Larosière that recommended the EU should create an official body to monitor systemic financial risk.

“While the ESRB remains autonomous, it has also greatly benefited from the visibility, independence and reputation of the ECB,” the ECB says in its official opinion. “The ECB provides analytical, statistical, administrative and logistical support to the ESRB.”

Senior ECB officials serve on the ESRB’s advisory technical committee and financial stability committee. The ECB opinion says this ensures “close co-operation at the technical level”.