Integrating macro-prudential policy: central banks as the ‘third force’ in EU financial reform

Abstract:

In recent years, policy-makers and financial authorities have established an intricate, multi-level framework for ‘macro-prudential’ policy-making in the European Union. This article argues that central banks have acted as a ‘third force’ in this process, determining the balance between national and supranational authority and ensuring their own predominance in the macro-prudential policy field. The article demonstrates central banks’ policy entrepreneurship through three phases in the creation of the macro-prudential framework: the negotiations surrounding the establishment of the European Systemic Risk Board in 2008–2010; the elaboration of a legal and organisational framework for the use of macro-prudential instruments in the banking sector in 2011–2012; and the creation of the Single Supervisory Mechanism in 2012–2014. Central banks’ influence derived from their perceived expertise in relation to financial stability, their existing delegated authority, and specific advantages stemming from the networked structure of their interactions with each other and supranational policy-makers.