The ECB, Financial Supervision, and Financial Stability Management

Abstract

After more than 10 years of monetary stability, it is time for the European Central Bank (ECB) to develop its financial stability role as well. The recent financial crisis has highlighted the need for the ECB to take a role in maintaining financial stability. In this chapter, I first make the case that financial stability needs to be managed at the European level. Next, I indicate that the ECB has set a first step towards maintaining financial stability with the publication of a Financial Stability Review since 2004. In addition, during several bouts of financial instability over the last ten years, such as the financial turmoil in the aftermath of terrorist attack in 2001 and the current financial crisis, the ECB has proven to be an effective general lender of last resort (LOLR), providing adequate liquidity when needed.