The ECB going green: Impact on the interrelationship between monetary policy and banking supervision?
| Author | Pieterjan Heynen |
| DOI | http://doi.org/10.1177/1023263X231158219 |
| Published date | 01 December 2022 |
| Date | 01 December 2022 |
| Subject Matter | Articles |
The ECB going green: Impact on
the interrelationship between
monetary policy and banking
supervision?
Pieterjan Heynen*
Abstract
The European Central Bank (ECB) has recently launched several initiatives in order to integrate
climate-related actions under its monetary policy and banking supervision tasks. The ECB ‘going
green’has sparked debate among legal scholars and central bankers. What has been left
untouched, however, is how climate-related action relates to the current organizational structure
within which the ECB executes its two main tasks. The SSM Regulation has installed a Chinese
Wall between these matters, which have to be conducted in ‘complete separation’from one
another. This article questions this structure in the light of the ECB’s climate-related efforts.
What are the implications of climate change and the ECB’s climate-related actions for the inter-
relationship between monetary policy and banking supervision? The consequences of climate
change are likely to be omnipresent, and will produce effects reaching far beyond specific policy
areas. In such a context, the ECB could benefit from more coordination and monitoring of
what is decided under each task instead of carrying them out in isolation from each other. It
will be argued that climate-related action has triggered an coordinative evolution within the
ECB, leading to and more awareness on how monetary policy and banking supervision are inher-
ently intertwined.
Keywords
ECB, climate change, monetary policy, banking supervision
*
Jan Ronse Institute for Company and Financial Law, KU Leuven, Leuven, Belgium
Corresponding author:
Pieterjan Heynen, Jan Ronse Institute for Company and Financial Law, KU Leuven, Tiensestraat 41, 3000 Leuven, Belgium.
Email: pieterjan.heynen@kuleuven.be
Article
Maastricht Journal of European and
Comparative Law
2022, Vol. 29(6) 667–684
© The Author(s) 2023
Article reuse guidelines:
sagepub.com/journals-permissions
DOI: 10.1177/1023263X231158219
maastrichtjournal.sagepub.com
1. Introduction
Climate change is hot and happening, and its severe consequences are increasingly recognized as a
systemic risk for the European financial system. Supervisors and regulators are contemplating how
they have to integrate the occurrence of climate change in their existing frameworks. The European
Central Bank (ECB) is no exception in this regard, and has marked climate change as a high priority
issue for both monetary policy and banking supervision.
1
Taking into account the potentially det-
rimental effects of climate change on the ECB’s objectives, the Bank has started to integrate
climate-related considerations in the policy frameworks of its two main tasks.
2
By doing so, a
wide variety of measures is considered: from raising awareness and enhancing climate-related dis-
closure to assigning preferential treatment to green collateral or increasing the volume of green
assets under its Purchase Programmes.
It should come as no surprise that these topical initiatives have raised several pressing legal ques-
tions. After all, the ECB is primarily dedicated to the stability of the Euro currency under its mon-
etary policy task, and as banking supervisor it has to guard over the financial health of individual
banks and the stability of the financial system as a whole. The extent to which the integration of
climate-related action is possible and desirable under these tasks is not immediately crystal clear,
and answering the question has proven to be challenging. The topic has been hotly debated in
legal scholarship, and well beyond.
3
Some issues, however, have been left unvisited. This contribution addresses one of these gaps by
considering how the ECB’s climate-related initiatives relate to the interrelationship between the two
main ECB tasks. What are the implications of climate change for the ECB’s organizational structure
and the interaction between these tasks? Currently, this interrelationship is governed following a
model of organizational separation, establishing a so-called ‘Chinese Wall’between monetary
policy and banking supervision (Article 25 SSM Regulation). It will be questioned whether this
model still holds in the light of climate-related action. The implications of both climate change
and climate-related policies are likely to be omnipresent, and will produce consequences reaching
far beyond specific policy areas. Certain initiatives might provoke a conflict between the various
ECB tasks, while others can lead to mutual enhancement. Considering these developments, does
the Chinese Wall within the ECB still make sense in the context of greening the monetary
policy and banking supervision tasks? It will be argued that climate-related action has triggered
a coordinative evolution, leading to more awareness on how monetary policy and banking super-
vision are inherently intertwined. This understanding might foster their interrelationship and
result in more overarching coordination and monitoring by the ECB.
1. ECB President Christine Lagarde has addressed climate change in several speeches, among others at the World Economic
Forum in Davos. See G. Caswell, ‘Davos: Lagarde Warns of Climate Threat to Human Lives’Green Central Banking
(2022), https://greencentralbanking.com/2022/01/27/davos-lagarde-climate-threat/.
2. Apart from its two main tasks, the ECB is also involved in banking resolution in the context of the Single Resolution
Mechanism (SRM), and in financial assistance programmes within the European Stability Mechanism (ESM).
Considering that climate change is not as relevant for these matters as it is for the ECB’s main tasks, they will be left
unvisited here. The ECB’s (supporting) role in the European Systemic Risk Board (ESRB), will be discussed later
(see infra 2.A).
3. Not only legal scholarship has been active in this regard. Central bankers themselves have expressed their opinion as
well, both pro (see I. Schnabel, ‘When markets fail –the need for collective action in tackling climate change’,
Speech at the European Sustainable Finance Summit (Frankfurt) (28 September 2020) and contra ECB involvement
in this matter, see De Standaard, ‘Pierre Wunsch heeft het parlement iets uit te leggen’(15 December 2021).
668 Maastricht Journal of European and Comparative Law 29(6)
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