Assessing Involvement of Central Banks in Financial Stability

Abstract

This paper presents the results of a comprehensive survey conducted with 27 European Union (EU) central banks concerning their involvement in ensuring financial stability. The paper also introduces a novel methodology ("Financial Stability Engagement index") to measure central bank involvement in fostering financial stability. After a brief literature review, the author constructs an index to assess financial stability in the EU via publicly available information. Index construction is complemented by results from a survey of the financial stability department heads in 27 EU central banks. The highest index scores were received by De Nederlandsche Bank and Czech National Bank. The average level of involvement is similar in central banks in the EMU, as well as in non-EMU ones. Along with the recent macroprudential reforms, the index level is likely to increase over time. Assessment of central bank involvement in financial stability also points to some practical policy recommendations for the future.

Keywords: central bank, financial stability, macroprudential policy, ECB, euro

JEL Classification: E50, E58, G28