EFI – Monetary Policy and Financial Stability
Integration and Innovation
European Financial Institutions (EFI) recognises that financial integration is an essential pillar for building a solid and unified European economy. Financial integration involves creating a single, cohesive capital market where money and financial assets can flow freely between member countries, promoting the efficiency and stability of the financial system.
EFI works to harmonise financial infrastructures and payment systems, ensuring that cross-border transactions are carried out with the same ease and security as domestic transactions.
A significant example of this effort is supporting the development and implementation of the Single Euro Payments Area (SEPA), which simplifies and harmonises electronic payments across the European Union, making international bank transfers as simple as local transfers.
In addition, EFI is at the forefront of innovation in the financial sector. With the advance of financial technologies (fintech), EFI is continuously exploring new solutions that can transform the financial services landscape, such as instant payments, blockchain and artificial intelligence applied to the financial market. EFI encourages the adoption of these innovations, while ensuring that they are implemented within a solid and secure regulatory framework, protecting consumers and investors while promoting market competitiveness and efficiency.
Supervision
The EFI plays a vital role in supervising the European financial system, ensuring the safety, stability and integrity of financial institutions operating in the European Union.
The financial supervision conducted by the EFI covers a wide range of activities, from regulating banking operations to monitoring risk management practices.
The supervision carried out by the EFI is designed to anticipate and prevent risks that could threaten the stability of the financial system.
This includes carrying out rigorous assessments of banks’ financial health, ensuring that they maintain adequate levels of capital and liquidity, and monitoring their lending practices to prevent the formation of financial bubbles.
In addition to its direct supervisory role, the EFI also works closely with other national and international supervisory authorities to promote regulatory co-operation and co-ordination.
This is crucial to ensure that supervisory policies and practices are applied consistently across the European Union, reducing the risks of regulatory arbitrage and strengthening confidence in the financial system.
Introduction to Financial Stability
EFI understands that financial stability is fundamental to sustainable economic growth and to the well-being of all citizens of the European Union.
Financial stability involves the ability of the financial system to withstand shocks, whether internal or external, and to continue to provide its essential services to the economy, such as financial intermediation, payments and risk management.
To achieve financial stability, EFI carries out continuous monitoring of financial markets, assessing systemic risks that can emerge from various sources, such as fluctuations in asset prices, high levels of indebtedness or tensions in global markets.
In addition, EFI draws up stress scenarios to assess the resilience of the financial system to different types of economic and financial shocks.
Financial stability is also promoted through policies aimed at reducing the vulnerabilities of the financial system.
This includes implementing prudential regulations that encourage sound risk management practices and promoting greater transparency in the financial market, allowing investors to make informed choices and financial institutions to be held accountable for their actions.
Macroprudential Measures
Macroprudential measures are a central component of the EFI’s approach to ensuring the stability of the financial system.
While microprudential supervision focuses on ensuring the soundness of individual financial institutions, macroprudential measures target the system as a whole, with the aim of mitigating the systemic risks that can cause broad and deep financial crises.
EFI implements a series of macroprudential tools, such as cyclical capital requirements, leverage limits and countercyclical capital buffers, which are adjusted in response to changes in economic and financial conditions.
These tools help contain excessive credit expansion during periods of economic growth and prevent financial institutions from taking on excessive risk.
In addition, EFI works to identify and correct macroeconomic imbalances that could threaten financial stability, such as property bubbles or excessive debt accumulation in specific sectors of the economy.
By monitoring these risks and implementing preventive measures, EFI contributes to the resilience of the financial system, ensuring that it can absorb shocks and continue to support sustainable economic growth.
The macroprudential measures adopted by EFI are carefully calibrated to balance the need for financial stability with economic growth.
The EFI also ensures that these measures are applied in a coordinated manner with other economic and financial policies, both at national and European level, to maximise their effectiveness and minimise possible side effects.