Monetary policy of the ECB: future perspectives for the Banking Union

Abstract

The purpose of the following work is to look into the new regulatory framework for the banking system proposed by the European Commission and assess its potential (macroeconomic) monetary implications. This new initiative integrates the conventional and unconventional monetary measures launched by the European Central Bank since 2011. The main aim of the so – called Banking Union is to deal with financial instability as well as to ensure the soundness of the financial system by addressing the issue of money creation in a two-tier monetary system wherein the European Central Bank provides the common monetary policy while the members' national central banks (NCBs) retain the supervision on the actual credit policy of domestic commercial banks. Modifying the current regulatory framework and the existing European two-tier banking system to increase system’s soundness constitutes a major challenge for the European Union. In order to describe and evaluate the issue of successfully implementing a Banking Union within a Monetary Union, we will analyse some of the major topics likely to be affected by this innovation. To be more precise, the following thesis will highlight the role of money, monetary policy, central banks’ operations as well as the transmission mechanisms.