The expanding role of central banks since the crisis: what are the limits?

Speech by Mr Hervé Hannoun, Deputy General Manager of the BIS, at the 150th Anniversary of the Central Bank of the Russian Federation, Moscow, 18 June 2010.

Abstract

The role of central banks has expanded considerably since the crisis. Central banks are now expected not only to ensure price stability, but also to have a mandate for financial stability and systemic risk oversight. The broader role of central banks in promoting financial stability is a permanent and welcome development. But central banks also expanded their role during the crisis by intervening directly in some key financial markets. While the unconventional measures have on the whole been effective, they may also have some undesirable side effects - in particular, the risk that market participants may come to expect central banks to stay involved in shaping the long-term segment of the yield curve. Large-scale central bank intervention in financial markets should therefore remain an exceptional development and not become a new permanent policy tool.