Abstract
As an institution competent both for central banking and banking supervision, the ECB is ideally equipped to monitor macroprudential risks. However, despite an overhaul of the European framework following the Great Financial Crisis, the ECB has remained assigned to a secondary or subsidiary role, largely dependent on the actions or lack thereof from the national competent authorities. After having presented the various tools at the ECB’s disposal to deal with macroprudential risks, this article critically assesses how and to what extent the Frankfurt-based institution should be held accountable in that field.
Introduction
A few months into the Great Financial Crisis (‘GFC’), the late Queen Elizabeth II visited the London School of Economics and used the opportunity of her speech before an audience stacked with economists to ask them, referring to the then rapidly deteriorating economic situation: why did nobody see it coming?
This question from the Queen was not left unanswered. A group of economists took her to her words and undertook to provide a reply. Six months later, in July 2009 this endeavour came to fruition with the publication of an official reply to the Queen by the British Academy. The four page-letter is telling for its sober and self-reflecting tone but also for the acknowledgement from established economists that before 2008 their focus was partially misguided. 1
They noted that in the years leading to the GFC, while individual risks may rightly have been viewed as small, (…) the risk to the system as a whole was vast.
the difficulty was seeing the risk to the system as a whole rather than to any specific financial instrument or loan.
In other words, the cause of the GFC was, at least in part, to be found in an excessively narrow focus on the monitoring of the financial soundness of individual institutions and in a more general inability to have a systemic and horizontal view on the financial sector.
At the time, most economic policymakers and academics had forgotten the seminal work of Minsky, who famously argued that for the financial system stability is destabilizing. 2 It is indeed during a credit boom, when financial institutions seem safe and sound and the perceived risks relatively low, that imbalances eventually leading to a financial crisis build up. The challenge for supervisors is that very often the perceived risks are limited for institutions assessed individually while instability is already growing from the various interactions that can be observed between them.
This assessment, which was widely shared around the world, triggered a renewed interest for macroprudential supervision. The concept of macroprudential supervision was indeed not a novelty. It appeared for the first time in the late 1970s during meetings of the so-called Cooke Committee at the Bank of International Settlements (“BIS”) before being formally endorsed by central bank governors and the Euro-currency Standing Committee in the 1980s. 3 Since the early 2000s, 4 the field was, however, on the verge of irrelevance, attracting the interest of only a few scholars. 5 The GFC marked a turning point at which policymakers and academics alike revived the concept and gradually reassessed its relevance.
At the global level, the G20 recalled that it was necessary to monitor and assess the build-up of macroprudential risks in the financial system. 6 The BIS sub-group for banking supervision reached the same conclusions and confirmed its intention to include more macro-perspective in its work. In Europe, recommendations to upgrade macroprudential supervision were issued both by the de Larosière report 7 and the Turner Review. 8
This renewed interest in macroprudential supervision did not remain confined to reports and academic articles and it did not take long for legislators to reinforce the existing powers of regulators and supervisors. Within the European Union (‘EU’), the European Central Bank (‘ECB’) was bound to benefit the most from this evolution, with an extension of its competences in two fields directly relevant for macroprudential supervision.
First, the EU adopted in 2010 a regulation 9 establishing a macroprudential oversight body, the European Systemic Risk Board (‘ESRB’). To address the need for a more holistic approach, the ESRB gathers representatives of the ECB, the Commissions as well as those from national central banks and national supervisory authorities and is part of the European System of Financial Supervision.
Second, the decision was taken to establish a Banking Union, whose aim was to make Europe's banks more robust and increase the overall confidence in the EU financial system. As part of this new policy, competences were conferred to the Single Supervisory Mechanism (‘SSM’), with the ECB at its helm in matters concerning micro- 10 but also macroprudential supervision 11 of credit institutions.
Macroprudential supervision’s main objective is to safeguard individual financial institutions from idiosyncratic risks and in more concrete terms to prevent them from taking too many risks. Macroprudential supervision on the other hand, focuses on the interactions among individual financial institutions and the much broader effects of these interaction on the real economy. 12
While necessary, the establishment of new institutions does not suffice to address macroprudential risks. Another key challenge to adequately oversee macroprudential risks is to come out with an accurate and widely accepted definition of the concept. Without providing a clear-cut definition, the International Monetary Fund identified three kinds of instruments intended to address macroprudential risks
13
:
- instruments intended to have an impact on the pro-cyclicality of the financial system (countercyclical capital buffer); - prudential instruments to address the build-up of systemic risk in a specific segment (loan-to- value ratio); - instruments to address liquidity concerns. The objective of macroprudential supervision is to limit the distress of the financial system as a whole in order to protect the overall economy from significant losses in real output.
14
In the same vein, the above-mentioned report from de Larosière refrained from precisely defining macroprudential supervision but tried to describe the concept by reference to its objectives, stating that:
Union law does not provide more clarity. Although the SSM Regulation refers to macroprudential risks or macroprudential stability, it does not contain a definition of macroprudential supervision. Similarly, the ESRB Regulation does provide a very broad definition of the concept of systemic risk, but it refrains from defining the notion of macroprudential supervision. 15
Despite a decade-long flow of litigation related to the Eurocrisis and financial stability, the European courts have avoided to define the concept. So far, the Court limited itself to ruling that macroprudential supervision is a key component of the SSM aimed at preserving the financial stability of the European Union. 16 In a rare attempt to better conceptualize it, the Advocate General Hogan tried in its Opinion on Case C-478/19 UBS 17 to lay out a procedural test to be complied with by authorities using macroprudential powers of supervision.
Without referring to the definition of systemic risk provided by the ESRB Regulation, the Advocate General considered that objectives intended to limit such a risk may be qualified as an overriding reason in the public interest. In its reasoning, the Advocate General appears to make a direct connection between the existence of a systemic risk calling for macroprudential supervision and the preservation of financial stability, which has for a long time 18 been recognized as a foundational objective in EU law and policy. 19 The ruling of the Court eventually focused on another issue and chose not to follow up on the attempt from Advocate General Hogan. Nevertheless, the approach proposed by Advocate General Hogan had some merits. It constituted a coherent attempt to lay out the necessary procedural steps to address systemic risks through macroprudential supervision.
By doing so, it would have indirectly confirmed that, while the relevant authorities enjoy a large margin of appreciation to define the systemic risks 20 they intend to tackle and the measure they want to adopt accordingly, a coherent and enhanced motivation is also warranted.
This lack of a legally enshrined definition of the concept of macroprudential risks creates challenges and opportunities for the relevant authorities which ultimately affects their accountability. The ECB can indeed be considered to follow what is referred to as performance accountability. 21 Assessing the performance accountability of an independent EU institution has a dual dimension. Most obviously, the ability of the institution to reach the objectives and target it has been legally requested to pursue is a key element. Equally important is also for the EU institution to ensure full compliance with the principle of conferral as the legitimacy and accountability of EU actions is closely related to compliance with the competences conferred to EU authorities.
In the field of macroprudential supervision, this type of accountability has to deal with a concept (macroprudential risks) loosely defined which has pros and cons. On the one hand, the absence of a clear definition complicates the delineation of competences between the European and the national level. This is particularly crucial for the ECB. Indeed, while it enjoys an exclusive competence to conduct microprudential supervision, the institution remains more of a coordinator of (in the ESRB) or a subsidiary actor to (under Article 5 SSM Regulation) national authorities in matters related to macroprudential supervision. On the other hand, the vagueness of the concept is also an asset for the competent institutions. It gives sufficient room for manoeuvre to adequately design tailored responses to systemic risks/crisis. Also, it helps to avoid a situation where too narrowly defined mandates/competences would prevent the regulators from being entrusted with the necessary powers to address unprecedented systemic risks (in the US, this is one of the reasons which led to the creation of the Financial Stability Oversight Council). This framework eventually affects the action of the ECB and should be kept in mind to better understand its potentialities and limitations to act as a macroprudential supervisor.
Macroprudential decisions have indeed highly distributional effects and, as such, are expected to directly affects companies and households. In turn, these distributional effects inevitable give rise to numerous challenges for an independent institution like the ECB which is shielded from any kind of direct accountability towards voters. In light of the above, the present article intends to discuss the instruments at the disposal of the ECB to be active in the field of macroprudential supervision. The first part focuses on the legally binding powers of the ECB which enables the institution to act as a subsidiary macroprudential supervisor. The second part describes the soft law instruments the ECB can use to influence the oversight of macroprudential risks. Finally, the last part explores the various elements of this framework having an effect on the accountability of the ECB.
The legally binding tools of the ECB to act in the field of macroprudential supervision
The ECB as a subsidiary macroprudential supervisor
Very often, the key metrics to measure the legitimacy of a public institution is to observe how the results of elections change the course of its decisions. The development of independent institutions whose core missions are to permanently take impartial decisions entails that they cannot infer their legitimacy from the same source. 22 Other metrics are then used to make sure that they remain accountable focusing more on judicial review, the respect of their mandate and result-oriented accountability.
These elements explain why the accountability of an independent institution like the ECB works differently from ministries or public institutions which are directly under the authority of elected politicians. Instead, in line with the categories from Fritz Scharpf, the legitimacy of an institution is widely considered to derive from its outputs. 23 Last, although it is debatable whether the ECB as a banking supervisor enjoys the same degree of independence as in the field of monetary policy, 24 the accountability of the entire institution remains closely related to the strict observance of its mandate and the limitations thereto. In this context, the ECB is to abide by the limitations to its competences provided by EU primary and secondary law. Such requirement is even more important considering the broad scope of the powers enjoyed by the ECB as a prudential supervisor and the fact that the institution has been granted an exclusive competence to carry out this task. 25
The first and most obvious legal basis for the ECB to act as a macroprudential supervisor is to be found in Article 5 SSM Regulation. The nature of the competence granted to the ECB is, however, very specific. The primary competence to act as a macroprudential supervisor lies in the hands of national competent and designated authorities (NCAs and NDAs, respectively) 26 and the Frankfurt-based institution can only exercise a procedural power or act in last resort whenever national authorities failed to do so.
This limited role granted to the ECB is particularly visible with respect to Article 5(1) SSM Regulation. This provision cements the leading role attributed to national authorities to address systemic or macroprudential risks. Under this framework, the ECB is merely acting as a consultative body. The competent national authorities are requested to notify the Frankfurt-based institution of an upcoming decision prior to its adoption so that the ECB can provide its written observations on the draft decision. However, these written observations are not legally binding and can eventually be dismissed by the same national authorities.
By giving national authorities the possibility to act whenever appropriate or deemed required, the EU legislature acknowledged that they enjoy a broad discretion to decide when and how to make use of their powers. The powers enjoyed by national authorities in this respect have only been partially harmonized but tend to be similar from one Member State to the other. 27 In this context, the role of the ECB is therefore confined to voicing its dissent in case it disagrees with a national measure. As such, it is only entitled to act in last resort as a procedural enforcer, making sure that the decisions adopted by national authorities are duly motivated and took into account the ECB's recommendations. This requirement does not, however, amount to an obligation for the national authorities to follow the ECB's views. Instead, this part of Article 5(1) SSM Regulation reads as a best endeavours clause whereby we may, at most, expect that the NCAs/NDAs provide an explanation as to why they do not intend to take into account the ECB's reasons to object. 28 Nevertheless, the national authorities do have a strong incentive to act in a certain way so as to avoid an intervention of the ECB at a later stage (see below).
Article 5(2) SSM Regulation provides the second legal avenue for the ECB to be active in macroprudential supervision. On the one hand, the ECB powers are constrained by the necessity requirement which implies that the ECB is only entitled to act if national authorities have proven incapable (or unwilling) of doing so. Moreover, under Article 5(4) SSM Regulation a dialogue is supposed to take place between the EU and the national level before such measures are adopted. National authorities should be consulted, and the ECB is required to take into consideration the comments they may have on the proposal. Here again, one could expect that if the ECB were to disregard the reservation of the NCA/NDA, a justification would be provided. On the other hand, the measures the ECB can adopt to address macroprudential risks remain very broad. Article 5(2) SSM Regulation mentions the imposition of higher capital requirements and more stringent measures aimed at addressing systemic or macroprudential risks. The main requirement for the ECB to fulfill before acting is therefore largely procedural as provided in the above-mentioned Article 5(4) SSM Regulation.
Finally, under Article 5(3) SSM Regulation, the ECB may be called upon by an NCA/NDA to act in matters related to macroprudential supervision. Although such tools reflect the interconnectedness and cross-border dimension of macroprudential supervision and ultimately support the Europeanization of macroprudential supervision, they only indirectly empower the ECB to act. In addition, this two-stage procedure cannot be compared to a fully-fledged common procedure 29 but rather to the requests from NCAs to the ECB to take over the supervision of a credit institution under Article 6(5)(b) SSM Regulation.
The provisions of Article 5 SSM Regulation entrust the ECB with a role to address macroprudential risks, but this role is either shared or second to the central role played by the national authorities. This division of competence, which differs from the other tasks conferred to the institution as a prudential supervisor, affects the expectations regarding the accountability of the ECB. The primary role of these national authorities means that they are expected to be in the driving seat and to be held accountable therefor. Having a secondary role, the ECB is not, however, prevented to act as a banking supervisor to adopt macroprudential measures. Its competence in last resort is even quite essential to make up for a lack of or poorly designed measures at national level. As such, the ECB is and remains accountable for having failed to act in case of persistent macroprudential risks left unanswered by NCAs/NDAs. In a sense, the output legitimacy of the ECB as the ultimate custodian of the SSM would be affected if, under its watch, macroprudential risks were allowed to grow unnoticed.
Based on this legal framework, the expected accountability of the ECB as a banking supervisor acting to address macroprudential risks differs from what is expected from the institution regarding its microprudential tasks. In turn, one can consider that the competences currently conferred to the ECB are too narrow to enable the institution to effectively fulfill one of its core tasks: the preservation of financial stability. 30 One option to address these shortcomings and at the same time improve the full accountability of the ECB to deal with threats to financial stability would be to expand the competences enjoyed by the institution as a macroprudential supervisor.
Constraints and potentialities to expand the reach of the ECB as macroprudential supervisor
The scope of the competence enjoyed by the ECB in prudential supervision is the same for micro- and macroprudential matters and is limited to credit institutions, financial holding companies and mixed financial holding companies. This means that whenever the ECB might be compelled to act under Article 5 SSM Regulation as a ‘macroprudential supervisor of last resort’, its actions are limited to the above-mentioned financial institutions. The inherent limitation of such a framework may affect the overall efficiency of the management of macroprudential risks in the financial sector because it does not cover among others the supervision of shadow banking activities.
Shadow banking is the term commonly used to refer to ‘a system of credit intermediation that involves entities and activities outside the banking system’, 31 which amounts to 42.6 trillion euros in terms of assets at the end of 2021 for the entire euro area. 32 Over the past years, it has played an increasingly important role in the economy by providing a growing source of funding for the banking sector and trading credit instruments. This business model remains, however, inherently risky, as like credit institutions, they borrow short to lend long.
Without an adequate supervision, imbalances that are less likely to materialize in a regulated area like the banking industry can indeed be shifted to other non-regulated areas of the financial system, like shadow banking. That said, if the EU Council were willing to grant the ECB the necessary competences to address macroprudential risks stemming from shadow banking activities, the current legal framework would not constitute an obstacle to such transfer of competences.
The legal ground to organize the prudential supervision of financial activities is provided by Article 127(6) TFEU. Under this provision, the Council may by unanimity entrust the ECB with tasks related to prudential supervision. So far, this legal basis has been only used to confer tasks related to the prudential supervision of credit institutions to the ECB with the adoption of the SSM Regulation.
While some matters 33 are clearly beyond the reach of Article 127(6) TFUE, from a strictly literal interpretation of this article, nothing prevents the ECB from being conferred more responsibilities to exercise the prudential supervision of the shadow banking sector. This article should indeed be read as a Kompetenz-Kompetenz clause whereby the Council can decide through secondary legislation to expand the matters conferred to the ECB as a prudential supervisor. 34 Successive amendments to the Single Rulebook have already expanded the competence of the ECB to supervise entities that are not strictly speaking credit institutions (financial holding companies and mix financial holding companies). 35 In addition, and more importantly from the perspective of macroprudential risks, the broad definition 36 of financial institutions under EU law covers the key entities (investment firms, investment holding companies, asset management companies…) referred to when we think of shadow banking. Finally, considering the open wording of Article 127(6) TFEU but also the growing relevance of the preservation of financial stability in the mandate of the ECB, it could be argued that granting such competence to the ECB is desirable for the institution to be fully accountable in matters related to financial stability. As monetary settlers, central banks already have the necessary expertise in assessing financial stability from a system-wide perspective which is the core of what macroprudential supervision should be about. In this regard, being able to fully address macroprudential risks related to shadow banking makes even more sense once the very same institution has already managed to assess them.
Beyond the above-mentioned powers deriving from Article 5 SSM Regulation, a significant part of the ECB powers to tackle macroprudential risks remains soft law instruments. Although they do not amount to legally binding decisions, these instruments carry a certain weight because their use is incorporated into tailor-made procedures where they cannot be ignored by Member States or other EU institutions. It is to these instruments that our attention now turns.
The soft law instruments of the ECB to influence macroprudential supervision
The ECB is ultimately accountable for the use of two different kinds of soft law instruments which could be relied on for macroprudential supervision purposes. First, the institution is directly responsible to issue Opinions as part of its consultative duties. Second, the ECB is, although indirectly, accountable for the recommendations adopted by the ESRB.
A. The ECB Opinions
Under Article 127(4) TFEU, the ECB shall be consulted on proposed legislation from either the EU or the Member States in its fields of competence.
As reminded by the CJEU, the rationale behind this obligation is: to ensure that the legislature adopts the act only when the [ECB] has been heard, which, by virtue of the specific functions that it exercises in the Community framework in the area concerned and by virtue of the high degree of expertise that it enjoys, is particularly well placed to play a useful role in the legislative process envisaged
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The matters considered to be in the ECB's fields of competence are mentioned in an open-ended list laid down in the ECB Decision 98/415. The list goes as follows:
- currency matters, - means of payment, - national central banks, - the collection, compilation and distribution of monetary, financial, banking, payment systems and balance of payments statistics, - payment and settlement systems, - rules applicable to financial institutions insofar as they materially influence the stability of financial institutions and markets.
The sixth of these items is routinely relied on by the ECB as the most relevant legal basis to provide an Opinion on matters related to macroprudential policy.
During the GFC, the number of Opinions issued by the ECB sharply increased. This evolution is somehow visible in the field of macroprudential policy where the ECB has adopted Opinions related to macroprudential policy covering a large number of countries, as shown in Figure 1 (author's own work).
The accountability of the ECB as a subsidiary or secondary macroprudential supervisor
These Opinions exist since the establishment of the ECB in 1998. More recently, new soft law instruments also relevant for macroprudential supervision have been introduced through the newly created ESRB.
B. The warnings and recommendations of the ESRB
The ESRB was established in January 2011, following the recommendation of the de Larosière report to replace the old Banking Supervision Committee with the aim to upgrade macroprudential supervision in the EU for all financial activities. 39 The core mission of the ESRB is to undertake the macroprudential oversight of the EU financial system to prevent or mitigate systemic risks to financial stability. 40 As such the material scope of the ESRB competence is not limited to credit institutions but covers virtually all matters related to the financial system and likely to affect the financial stability of the EU and the ESRB is a part of the European System of Financial Supervision. 41
From the outset, the de Larosière report made clear that the ECB should be having a decisive role in the functioning of the ESRB. 42 While the ESRB is a body under EU law established by virtue of the ESRB Regulation, it has no legal personality and remains closely tied to the ECB. The ECB is indeed required to provide it with the necessary administrative, logistical, statistical and analytical support. 43 Crucially, the secretariat is also tasked with international cooperation and the contacts with non-EU authorities. 44 The connection between the ECB and the ESRB is also apparent on a personal level as the ECB President is also the Chair of the ESRB 45 and both the ECB President and Vice-president sit on the General Board, each with voting rights. 46
At the same time, the dual nature of the ESRB and the importance of national authorities in the functioning of this body is visible in many respects and was reaffirmed by the most recent amendment to the ESRB Regulation. To maintain a balance between the European and the national representation in the two main leadership positions of the ESRB, Regulation 2019/2176 clarified that the Vice-Chair shall be a member from national authorities. 47 It also stressed that the Head of the ESRB Secretariat should not necessarily be an ECB official but that such function should systematically be open to external candidates (i.e., non-ECB). 48
Interestingly, the EU legislator added that the Vice-Chair's appointment shall be guided by the need to ensure a balanced representation between the Member States participating to the SSM and those outside, hence trying to address recurring criticisms from Member States not participating in the SSM. 49 These attempts to achieve a better representation of all Member States in the ESRB are designed to increase its overall legitimacy and should ease the endorsement by national authorities of ESRB recommendations.
Regarding the tools at its disposal, the ESRB has been granted a competence to issues warnings and recommendations, i.e., soft law instruments only. Under a joint reading of Articles 16 and 3(1) of the 1092/2010 Regulation, the ESRB may issue warnings on vulnerabilities observed in the European Union whenever significant systemic risks to financial stability are identified. The aim of the warning is to flag such risks to the relevant authorities. Both warnings and recommendations can be general or specific and addressed to a wide range of institutions (national authorities, EFSF, Commission and so on). Two elements distinguish warnings from recommendations. The use of recommendations is somehow a bit more constrained than the use of warnings, as the ESRB needs to demonstrate that issuing recommendations is ‘appropriate’. 50 Contrary to warnings, recommendations are designed to entail remedial actions from the addressee with a specified timeline for policy response. 51 Recommendations are therefore covered by the act or explain regime whereby the addressee is required to communicate the actions undertaken to respond to the recommendation and substantiate any inaction. 52
The use of soft law instruments affects the kind of accountability which can be expected from the ECB acting as (secondary) macroprudential supervisor. The institution remains indeed unable to directly change a given policy through these instruments. However, its performance accountability (and ultimately its credibility) could be affected if it did not spot the relevant macroprudential risks. In this context, both the scope of the ECB action and the disclosure of its analysis are crucial elements (1), affecting the way the ECB should eventually be held accountable in court and before other EU institutions (2).
A. Elements affecting the ECB's accountability
The importance of the scope of action
As explained above, a key feature of macroprudential risks is their cross-border dimension. This element is particularly important within the EU where capital circulates freely from one Member State to the other but also between the EU and third countries. 53 The restricted territorial and material competences enjoyed by the ECB to act as macroprudential supervisor in banking matters prevent the institution from acting forcefully to tackle macroprudential risks, hence affecting its ultimate level of accountability.
Interestingly and contrary to the SSM or the Eurozone, the ECB's competence as a consultative authority covers all the Member States. This makes the use of such powers particularly relevant considering that macroprudential risks occurring in the EU are hardly confined to a subset of Member States. Similarly, the ESRB covers subject matter that is not limited to the Banking Union and the Eurozone and it also covers jurisdictions that are not part of these two areas. This increases the efficiency of the assessment conducted by the ECB but also improves the chances to solve cross-border issues.
Finally, it is worth noting that the competence of the ECB to issue Opinions is not strictly limited to matters related to the Eurozone or concerning banking supervision. It covers more broadly a range of matters likely to affect the ECB's core competences such as the regulation of securitization or provisions on inflation indexed loans. 54 Although probably a consequence of acting only through soft law instruments, this expanded scope of competences positively serves the ability of the ECB to reach its objectives as a diligent observer of macroprudential risks across the entire European Union.
Enhancing efficiency and accountability through public disclosure
While both Opinions and warnings/recommendations should be characterized as soft law instruments or recommendations under Article 288 TFEU, their nature differs, 55 which impacts their disclosure to the public.
Opinions are indeed prospective. As they are discussing regulations covering macroprudential risks still to be adopted, the potential financial consequences of the disclosure seem, at best, remote. That is the reason why, since 2005, ECB Opinions are published immediately after being transmitted to the relevant authorities unless there are specific grounds to refrain from immediate publication. 56 The default stance is therefore to publish an Opinion immediately after its adoption.
The situation is, however, slightly different concerning ESRB warnings and recommendations which are discussing macroprudential risks that are about or already existing. In that sense, both warnings and recommendations are responsive and triggered by the existence of a sizeable risk. Undoubtedly, making warmings and recommendations public is a key aspect to ensure both the efficiency of and the accountability for the measures at hand. Public disclosure is indeed made to increase the pressure on national authorities to act by giving an opportunity to national governments and perhaps more importantly to national parliaments to elevate the matter and take, if needed, the necessary actions. 57
In a sense, public warnings and recommendations by the ESRB can also be compared to budgetary recommendations issued by the Council under Article 126 TFEU which have been gradually made public to improve their efficiency. 58 They are aimed at fostering compliance 59 through peer pressure from Member States wary of potential spill-over effects. In addition, public disclosure also provides valuable information to financial institutions regarding the risks associated with investments in a given country or concerning a specific sector (potentially affecting the very decision to be active in a given country).
The use of public disclosure remains, however, constrained in two respects. The first constraint results from the voting modalities which require a majority of two-third of the votes to make a warning or a recommendation public. 60 The second constraint is more implicit but relates to the need to balance the disclosure of a warning or a recommendation with the potential negative effect of such disclosure on financial stability. 61 These two caveats should in practice largely prevent the disclosure of warnings or recommendations pointing at the most destabilizing macroprudential risks. In such case, the reputation of the ECB could theoretically be indirectly tarnished 62 by the perception that the ESRB did not adopt a much-needed warning and/or recommendation. Delayed publications would in such case be warranted to ensure full accountability. In its current form, the ESRB Regulation does not provide any indication on this matter. 63
B. The dual dimension of the ECB's performative accountability to monitor macroprudential risks
Taken together, both the scope of action of the ECB and the disclosure of the relevant decisions are crucial to enable at a later stage a review of ECB macroprudential actions either before Courts or other EU political bodies.
Judicial accountability
Although non-legally binding, acts adopted by the ECB carry the name and repute of the institution and can certainly affect the behaviour of economic operators. This is the reason why opinions but also warnings and recommendations can be effective and positively help to address macroprudential risks.
Nevertheless, the other face of the coin is that the very same acts, whenever manifestly inaccurate, legally unsound or beyond the competence of the ECB, can have adverse consequences for economic operators. These consequences, eventually leading to pecuniary losses, could pave the way for an action for damages.
This assessment which could be inferred from a consistent line of caselaw since 2004
64
was endorsed by the General Court for ECB Opinions in a 2017 ruling.
65
Notably the Court ruled that: The admissibility of an action for damages brought against an opinion of the ECB cannot therefore depend on whether or not that opinion was legally binding.
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As regards the ESRB warnings and recommendations, for the same reasons as the Opinions, an action for damages against the ECB for having issued a recommendation would be admissible. The ECB stands indeed as a caretaker for the ESRB. The first reason for that is that it provides all kinds of technical support for the ESRB to be able to perform its tasks (most crucially the relevant data). Moreover, the fact that the ESRB does not have legal personality reinforces the need for the ECB to be ultimately responsible for its action of the ESRB. This can be inferred from the Chrysostomides ruling 68 where the Court clarified that for a body outside the institutional and legal framework of the European Union 69 like the Eurogroup, there is ultimately a related EU institution which has to be liable in the context of an action for damages. For all the above, we believe that the ECB could be the addressee of an action for damages on behalf of the ESRB.
Identifying the ECB as the defendant in an action for damages would, however, not be the most challenging part for an applicant bringing an action for liability before EU courts. An applicant would face an uphill struggle to demonstrate that the ESRB manifestly and gravely disregarded the limits of its discretion by adopting recommendations directly causing losses.
One open question when the ESRB Regulation was adopted related to the exact nature of recommendations and the ensuing consequences it could have for potential challenges before EU courts. Contrary to other soft law instruments, ESRB recommendations require a response from the addressee (referred to as the ‘act or explain’ regime). Such a distinctive feature could have been relied on to consider these recommendations as a very specific kind of soft law instruments, with its own legal regime and ensuing judicial accountability.
The view of the CJEU was at first not entirely settled. The EU Court has indeed consistently held that soft law instruments cannot be challenged through an action for annulment as they do not produce legally binding effects. 70 However, it is only very recently that the Luxembourg court had the opportunity to determine if soft law instruments with a ‘comply or explain’ regime should be treated differently. In a recent case concerning EBA Guidelines adopted under Article 16 of the EBA Regulation, EU judges ruled that these Guidelines should be treated like any other soft law instrument, hence closing the possibility to bring an action for annulment against them. 71 We are of the view that the same reasoning would apply mutatis mutandis to the ESRB recommendations whose regime is identical to the EBA Guidelines.
If the action for annulment is unlikely to help boosting the judicial accountability of ESRB recommendations, the more strenuous path of the preliminary reference remains an option. 72 Indeed, in the very same case, the Court confirmed 73 a very long and consistent line of caselaw that preliminary references can cover soft law instruments. This would require the subject matter of an ECB Opinion or warning/recommendation to be central to a case initiated before national courts and that the same courts subequently deem it relevant to refer the matter to the CJEU (these conditions could be fulfilled whenever an NCA/NDA adopts an act on the basis of ECB soft law instruments and the very same act is later challenged before national courts). This arguably leaves a lot of room for uneven treatment across the EU depending on the content of national rules of admissibility. Still, this option remains and could prove effective to hold the ECB in check for its action in macroprudential matters, the same way it did for the EBA and its Guidelines.
Democratic accountability
The second and most obvious way to hold the ECB accountable for addressing macroprudential risks is to ensure that high-ranking ECB officials can respond to criticism voiced by elected leaders. Both for ECB Opinions 74 and actions from the ESRB, it is the ECB President who is expected to play this role.
As Chair of the ESRB, the ECB President is invited annually to a hearing at the European Parliament. 75 The current framework tries to ensure that the accountability of the ECB President acting as Chair of the ESRB is distinct from its other functions. The hearing is therefore expected to be conducted at a different time from the hearing of the ECB President on ECB matters, which has sometimes proved difficult to do. Other discussions are also held before the Economic and Monetary Affairs Committee with the Vice-Chair of the ESRB, which is positive so as to give the perspective of national authorities on the work undertaken by the ESRB. 76 Interestingly, the other institutions (Council, Parliament, Commission) are not passive and can actively invite the ECB to examine specific issues which they perceive as relevant regarding the macroprudential oversight of the financial system. 77
All in all, the relevant framework strives to reflect the various interests at hand to shape the responses to macroprudential risks. One can, however, suggest that the possibility to give a more formal role (like attending the relevant hearings with the EP) to the Vice-Chair of the SSM and member of the ECB Executive Board would also be coherent. This dual hat gives its office holder a unique perspective to be involved in policy-making decisions in the two ECB core fields of competences (monetary policy and banking supervision) which may be decisive to efficiently handle the different dimensions of macroprudential risks.
Conclusion
The principle of delegation which underpins the transfer of competences to independent authorities calls for a restrictive role for the ECB in macroprudential matters. Under this principle, it is indeed widely assumed that decisions with direct distributional effects should not be delegated to independent authorities. 78
For instance, having the ECB adopting a legally binding decision meant to affect the housing or property market through a loan-to-income ratio could help to deal with a nascent housing bubble. However, this would equally affect the possibility for households to acquire a house in certain countries. Such a far-reaching decision could hardly escape full democratic scrutiny, which is currently not compatible with the independence of central banks. This is the reason why this author believes that if such a change of approach were to be implemented, a revamped framework regarding the democratic accountability of the ECB would be warranted. It would also inevitably present new challenges regarding the judicial and reputational accountability of the institution.
In this context, the current framework where the ECB has been conferred secondary roles to deal with macroprudential risk seems justified. Some improvements could, however, still be considered. The scope of these powers, especially those listed in the SSM Regulation, could be expanded to cover shadow banking which is a growing source of macroprudential risks. In addition, a clarification of the link between these macroprudential powers and the broader tasks of the institution regarding financial stability could be useful to better grasp how these two interact with each other. This, in turn, would allow those in charge (i.e., the European Parliament, among others) to keep the ECB better in check.
