European Central Bank paper identifies independence and decision making powers as key to effective EU macroprudential policy

An Occasional Paper published by the European Central Bank assesses the institutional and operational frameworks for macroprudential policy across all 27 EU countries. Based on a literature review, a survey of national authorities and country case studies, it finds that no single institutional model guarantees effective policy. All jurisdictions consider their frameworks generally effective, but the paper cautions that this self-assessment may be positively biased and that the frameworks have not been tested through a severe boom-bust crisis. Timeliness and effectiveness instead depend on clear mandates, direct decision making powers, operational independence, coordination and accountability. Macroprudential authority is concentrated in a single institution in 17 countries and organized through a board in 10. Capital measure decisions are generally centralized, often within central banks, and countries with single-authority structures have tended to act earlier than board-based systems. The countercyclical capital buffer and systemic risk buffers are now widely used, while measures under Articles 124, 164 and 458 of the Capital Requirements Regulation remain uncommon. Borrower-based measures are also widespread but face greater political, legal and data constraints because of their direct effects on households and access to housing finance. The paper argues that macroprudential authorities should have powers enabling them to act directly on systemic risk assessments. A leading role for an independent central bank or other independent authority can reduce political interference and inaction bias, while majority voting can prevent stalemates in multi-agency bodies. More strategic communication on policy objectives, trade-offs and distributional effects could also support the implementation of measures, particularly borrower-based restrictions.