European Central Bank

Who?
Official EU institution at the heart of the Eurosystem (central banking system of EU zone – main
goal is to maintain price stability and safeguard value of euro) as well as the Single Supervisory
Mechanism (also comprises national competent authorities )for banking supervision. Mission is
to serve the people of EU by safeguarding the value of euro and maintaining price stability.
Supervision of credit institutions located in the euro area and participating non euro area ms.

European Central Bank

The legal basis for the single monetary policy is the Treaty on the Functioning of
the European Union and the Statute of the European System of Central Banks and of the
European Central Bank. The Statute established both the ECB and the
European System of Central Banks (ESCB) as from 1 June 1998. The ECB
was established as the core of the Eurosystem and the ESCB. The ECB and
the national central banks together perform the tasks they have been
entrusted with. The ECB has legal personality under public international law.

19 eurozones:

Austria
Belgium
Cyprus
Estonia
Finland
France
Germany
Greece
Ireland
Italy
Latvia
Lithuania
Luxembourg
Malta
the Netherlands
Portugal
Slovakia
Slovenia
Spain

Participating non euro countries

 Bulgaria
 Croatia
 Czech Republic
 Hungary
 Poland
 Romania
 Sweden

The Governing Council is the main decision-making body of the ECB. It

consists of
 the six members of the Executive Board, plus

 the governors of the national central banks of the 19 euro area countries.

Acknowledged authority in monetary and

financial matters
Building on its solid constitutional basis, its independence and its internal
cohesion, the Eurosystem, the central banking system of the euro area, acts
as the monetary authority of the euro area and as a leading financial
authority, fully recognised inside and outside Europe. In pursuing its primary
objective, the maintenance of price stability, the Eurosystem will undertake
the necessary economic and monetary analyses and adopt and implement
appropriate policies. It will also properly and effectively respond to monetary
and financial developments.

Financial stability and European financial

integration
In the Eurosystem and within the Single Supervisory Mechanism (SSM), we
aim to safeguard financial stability and promote European financial
integration in cooperation with the established institutional structures. To
this end, we will contribute to policies providing for a sound European and
global architecture for financial stability.
Accountability, independence, credibility;
closeness to the citizens of Europe
In the Eurosystem and within the SSM, we attach utmost importance to
credibility and accountability and we will be transparent while fully observing
the applicable confidentiality requirements. We aim for effective
communication with the citizens of Europe. We are committed to conducting
relations with European and national authorities in full accordance with the
Treaty provisions and with due regard to the principle of independence. To
this end, we will keep abreast of the transformations and developments
affecting money and financial markets and will be sensitive to the public
interest and market needs.

Shared identity, clarity of roles and

responsibilities and good governance
In the Eurosystem and the SSM, we aim to strengthen our shared identities
within a framework of clearly defined roles and responsibilities for all
participants. To this end, both the Eurosystem and the SSM will build on the
potential and deep involvement of all their members, as well as on their
commitment and willingness to work towards agreement. Furthermore, the
Eurosystem and the SSM are committed to good governance and to applying
effective and efficient organisational structures and working methods.

Best practice in banking supervision; equal

treatment and level playing field
We in the SSM will measure our supervisory framework against the highest
international standards. We will combine the best of the national approaches
to build a best practice framework for banking supervision across the
participating Member States, benefiting from our view across all institutions.
The SSM will ensure compliance with the single rulebook and with applicable
supervisory principles and practices, thereby ensuring a level playing field
and the equal treatment of all supervised institutions.

Risk-based approach and proportionality;

supervisory action
The SSM banking supervision will be agile and risk-based, involving
judgement and forward-looking critical assessment. It will take into account
both the probability of a failure of institutions or an institution and the
impact that such a failure may have on financial stability. The supervisory
practices of the SSM will follow the principle of proportionality, tailoring the
intensity of supervision to the systemic importance and risk profile of the
supervised banks. The SSM’s approach fosters efficient and timely
supervisory action and a thorough monitoring of a credit institution’s
response.

HISTORY

The euro area came into being when responsibility for monetary policy was
transferred from the national central banks of 11 EU Member States to the
ECB in January 1999. Greece joined in 2001, Slovenia in 2007, Cyprus and
Malta in 2008, Slovakia in 2009, Estonia in 2011, Latvia in 2014 and
Lithuania in 2015. The creation of the euro area and of a new supranational
institution, the ECB, was a milestone in the long and complex process of
European integration.

The Governing Council

(as at June 2018)

Responsibilities
 to adopt the guidelines and take the decisions necessary to ensure the
performance of the tasks entrusted to the ECB and the Eurosystem;
 to formulate monetary policy for the euro area. This includes decisions
relating to monetary objectives, key interest rates, the supply of reserves
in the Eurosystem, and the establishment of guidelines for the
implementation of those decisions.
 in the context of the ECB’s new responsibilities related to banking
supervision, to adopt decisions relating to the general framework under
which supervisory decisions are taken, and to adopt the complete draft
decisions proposed by the Supervisory Board under the non-objection
procedure.

Meetings and decisions

The Governing Council usually meets twice a month at the ECB’s premises in
Frankfurt am Main, Germany.

The Governing Council assesses economic and monetary developments and

takes its monetary policy decisions every six weeks. At the other meetings,
the Council discusses mainly issues related to other tasks and
responsibilities of the ECB and the Eurosystem. To ensure the separation of
the ECB’s monetary policy and other tasks from its supervisory
responsibilities, separate meetings of the Governing Council are held.

The monetary policy decision is explained in detail at a press conference held

every six weeks. The President, assisted by the Vice-President, chairs the
press conference.

In addition, the ECB publishes regular accounts of the Governing Council’s

monetary policy meetings before the date of the next one.

What is the rotation system of voting rights

on the ECB’s Governing Council?
The rotation system concerns the allocation of voting rights to the members
of the European Central Bank’s Governing Council. The Council is the ECB’s
highest decision-making body and is responsible for setting interest rates
and conducting monetary policy. It consists of six Executive Board members
and the 19 national central bank Governors of euro area countries. The
accession of Lithuania to the euro area in 2015 triggered a change in the
voting rights, as envisaged by the Governing Council in December 2002.

Why is a rotation of voting rights

necessary?
It helps maintain the Governing Council’s ability to take action even as the
number of euro area countries gradually increases and with them, the
number of members of the Governing Council. According to European Union
treaties, the rotation system had to be implemented as soon as the number
of Governors exceeded 18, which was the case on 1 January 2015 when
Lithuania joined the euro area.
Which Governors have voting rights in a
given month and which do not?
Euro area countries are divided into groups according to the size of their
economies and their financial sectors. To determine which national central
bank Governor belongs to which group, a ranking was established. The
Governors from countries ranked first to fifth – currently, Germany, France,
Italy, Spain and the Netherlands – share four voting rights. All others (14
since Lithuania joined on 1 January 2015) share 11 voting rights. The
Governors take turns using the rights on a monthly rotation.

Could the new regime have been

postponed?
No, as this would have violated the EU treaties. The original decision allowed
for a postponement (until there were more than 18 euro area countries) but
this option had been used. No further postponement was possible.

Before 1 January 2015 we had the principle

of one member, one vote. With the rotation
system there are three different classes of
Governing Council members. Does that
affect the discussion among the members
and the decision-making process?
All members of the Governing Council attend the meetings and have the
right to speak, so in terms of the discussion nothing has changed. Since the
Governing Council takes most decisions on a consensual basis, in a spirit of
cooperation, the decision-making process has not changed either. Of course,
the one member, one vote principle applies to those holding a voting right at
that time.

Do members of the Executive Board hold

permanent voting rights?
Yes, the ECB’s Executive Board members hold permanent voting rights.
How does the voting right system compare
with that of, for example, the US Federal
Reserve?
The system used by the Federal Open Market Committee (FOMC) of the US
Federal Reserve is very similar to the one used by the ECB. The FOMC has
12 voting members, 7 of whom are members of the Board of Governors and
hold permanent voting rights, rather like the ECB’s Executive Board
members on the Governing Council. The President of the New York Fed has a
permanent voting right, the Presidents of the Federal Reserve Banks of
Chicago and Cleveland vote every other year and the Presidents of the other
nine Federal Reserve Districts vote every third year. Unlike the Fed’s yearly
rotation, the voting rights for the members of the ECB’s Governing Council
rotate every month.

Practical implications
Neither the ECB nor the national central banks (NCBs), nor any member of
their decision-making bodies, are allowed to seek or take instructions from
EU institutions or bodies, from any government of an EU Member State or
from any other body.

EU institutions and bodies and the governments of the Member States must
respect this principle and not seek to influence the members of the decision-
making bodies of the ECB (Article 130 of the Treaty)

Other provisions
The ECB's financial arrangements are kept separate from those of the EU.
The ECB has its own budget. Its capital is subscribed and paid up by the
euro area NCBs.

The Statute foresees long terms of office for the members of the Governing
Council. Members of the Executive Board cannot be reappointed.

Governors of NCBs and members of the Executive Board have security of

tenure:
 NCB governors have a minimum term of office of five years;
  members of the Executive Board of the ECB have a non-renewable term
of office of eight years;
 both can be removed from office only in the event of incapacity or
serious misconduct;
 the Court of Justice of the European Union is competent to settle any
disputes.
The Eurosystem is prohibited from granting loans to EU bodies or national
public sector entities. This further shields it from any influence exercised by
public authorities.

The Eurosystem is functionally independent. The ECB has at its disposal all
instruments and competencies necessary for the conduct of an efficient
monetary policy and is authorised to decide autonomously how and when to
use them.

The ECB has the right to adopt binding regulations to the extent necessary
to carry out the tasks of the ESCB and in certain other cases as laid down in
specific acts of the EU Council.

ECB Banking Supervision and

accountability
The ECB’s accountability for its banking supervision tasks is subject to a
specific regime set down in the Single Supervisory Mechanism (SSM)
Regulation.

How the supervisory accountability requirements are to be fulfilled in

practice is clarified in:
 an Interinstitutional Agreement between the European Parliament and
the ECB
 a Memorandum of Understanding between the Council of the EU and the
ECB

Capital subscription
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Last updated on 1 January 2019

The capital of the ECB comes from the national central banks (NCBs) of all
EU Member States and amounts to €10,825,007,069.61.

The NCBs’ shares in this capital are calculated using a key which reflects the
respective country’s share in the total population and gross domestic product
of the EU. These two determinants have equal weighting. The ECB adjusts
the shares every five years and whenever there is a change in the number of
NCBs that contribute to the ECB’s capital. These are the NCBs of EU Member
States. The adjustment is made on the basis of data provided by the
European Commission.

Since the start of Stage Three of Economic and Monetary Union on 1 January
1999 the capital key has changed seven times: a five-yearly update was
made on 1 January 2004, on 1 January 2009, on 1 January 2014 and on 1
January 2019; additional changes were made on 1 May 2004 (when the
Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland,
Slovenia and Slovakia joined the EU), on 1 January 2007 (when Bulgaria and
Romania joined the EU) and on 1 July 2013 (when Croatia joined the EU).