How Central Banks Can Succeed as Systemic Risk Regulators

In response to the financial crises in the United States and Europe, policymakers have significantly increased the regulatory authority of central banks.
American Banker
Nov. 15, 2012

The most recent move in this direction was the European Union's agreement to empower the European Central Bank as the supranational bank regulator across the continent. This follows a change in the United Kingdom, where the Bank of England was charged with overseeing financial stability, wresting that power away from the bank regulatory agency, the Financial Services Authority. In the United States, the Dodd-Frank Act empowered the Federal Reserve to become the "systemic risk regulator," granting it broad power to regulate any financial institution deemed systemically important (so-called SIFIs).

Clearly, a global shift is underway. Central banks are operating under an additional mandate beyond that of setting monetary policy:  to regulate the largest, systemically important institutions.