Claudia Buch: Financial stability in a monetary union

Speech by Prof Claudia Buch, Vice-President of the Deutsche Bundesbank, on the occasion of the conference of the University of Tübingen in cooperation with Deutsche Bundesbank (Regional Office in Baden-Württemberg), Tübingen, 27 October 2022.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Ladies and gentlemen,

thank you very much for inviting me to this conference. The title of the conference suggests that central banks have a crucial role to play in preventing and managing crises. This relates, first and foremost, to its core mandate, price stability.

But central banks have, over the past decade, also been assigned an explicit role in contributing to financial stability. The significance of financial stability for economic growth and prosperity has been clearly acknowledged by Nobel Prize Committee's decision to award the prize to Ben Bernanke, Douglas Diamond, and Philip Dybvig. Their work focuses on the role banks play for the economy and society – as well as on the costs of bank failure and the need for regulation.

While much of the discussion today and tomorrow is and will be about the interaction between monetary and fiscal policy, I will focus on financial stability. In Europe, we have quite a unique setting: the ECB's Governing Council takes monetary policy decisions for the whole euro area. Financial stability is a joint responsibility of the national and the supranational level: Both surveillance of the financial system and addressing risks to financial stability are, to a large extent, national tasks. Responsibility for other key policies affecting financial stability – such as fiscal policy – resides at the national level. The supranational level plays an important role in the surveillance of risks due to cross-border spillovers, and addressing a possible inaction bias at the national level.