LONDON (Reuters) - European Central Bank policymakers will be able to use the information they gain from their new banking supervisory powers in the traditional monetary policy side of their jobs, ECB Vice President Vitor Constancio said on Monday.
The ECB will take over the supervision of around 120 the euro zone’s most important banks next month. It is one of the bloc’s flagship responses to the financial crisis but marks a huge broadening of the central bank’s primary role of keeping inflation in check.
Up until now policymakers have stressed how the responsibilities will be clearly separated to avoid a blurring of the lines between the two, but Constancio said in reality that would be impossible, and anyway should be seen as a plus.
“The separation of the two policy functions (monetary policy and supervisory) does not preclude benefitting from combining them,” he said at the London think-tank, Chatham House.
“If policymakers are members of the same institution, they can decide independently, but in a pragmatic way, taking spontaneously into account the spillovers between policy areas.”
It could apply in both directions, he added. The interlinkage between monetary policy and financial stability for decisions on banking supervision matters could be just as useful as the other way around.
“Combining and using the experience is one aspect of the synergies that emerge from having all these functions under one roof.”
Germany in particular has been wary about combining the roles of monetary policy and interest rate setting with that of supervising banks.
The concern is the ECB will become overburdened and that worries about the potential negative impact of higher interest rates or other policy moves on a country‘s, or set of countries’ banks, could end up delaying monetary policy decisions.
Despite stressing that combining all new information should be seen as a benefit, Constancio did say however that neither banking nor monetary policy considerations should have too much influence on decisions about the other.
“Obviously supervisory decisions have to be taken not considering their affects on monetary policy and vice versa”, he said.
Reporting by Marc Jones; Editing by Crispian Balmer