ECB and its role in financial crisis
European Central Bank and its role in financial crisis. The establishment of the ECB. European Central Bank activities. Governing bodies. ECB accountability and independence. Eurozone crisis. Causes of the crisis. ECB role in the financial crisis.
Recently, in the euro area, which is composed of all the countries that have adopted the euro, prevailed crisis. The European sovereign debt crisis appeared then, when financial institutions collapsed in many Member States, also when it had the large public debt and was rapidly rising bond yield spreads in government securities. Euro crisis began after the collapse of Iceland's major banks and this recession led to the crisis of confidence for European businesses and Economies. At that time, the European Central Bank had to play a crucial role in dealing with the financial problems in Europe.
The aim of this paper: to describe the ECB as an institution, and reveal the importance of the ECB in financial crisis.
The European Central Bank has been developed gradually transforming other organizations. ECB's predecessor was founded in 1994: it is the European Monetary Institute. It operated between 1994 and 1997. The Institute was founded on the basis of the European Monetary Cooperation Fund, taking over and expanding the functions of the foundation. The most important task of EMI was to prepare for the establishment of the ECB and of the European System of Central Banks (ESCB) activities.
The ECB was established in 1998 June. It has assumed responsibility for the euro area - the second largest economic area in the world after the United States. The responsibility for monetary policy was transferred from the 11 national banks, and then from 12, when Greece joined the eurozone in 2001. All candidate countries had to meet the convergence criteria for adopting the euro currency, whose aim was to ensure the success of economic and legal participation in the stability-oriented monetary union. As it took over functions from the EMI and expanded them, ECB became a full-fledged central bank, and EMI was liquidated. In 2009, it was given legal personality (Article 282 (3) of the Treaty on the Functioning of the European Union).
The ECB's main goal - maintaining price stability, i.e. protect the value of the euro. This body sets interest rates, for which lends money to commercial banks in the euro zone, and thus controls the money supply and inflation. Also, keep the euro area's foreign exchange reserves and, if necessary, buy or sell currency to maintain exchange rate equilibrium. It also ensure that national authorities properly supervised financial markets and institutions, and the smooth operation of payment systems. Another function is to ensure the banking system security and reliability. Together with national supervisors ECB also carries out banking supervision in the euro area and other common supervisory mechanism (CSM) in the participating countries. This duty has been entrusted to him in 2014, in order to ensure the security of credit institutions and the reliability and stability of the financial system. In addition, the ECB provides euro-zone countries to authorize the issue of euro banknotes, monitor price trends and assess the risks to price stability.