Monetary Policy, Banking Supervisory Policy, and Economic Growth in Europe

The chapter aims at describe the definition and the trend of the monetary policy with a focus on critical issues of the interaction between monetary and supervisory policy in the euro area in the latest years. Actually, in a context of uncertainty, the monetary policy easing of the BCE may be considered proper, though there are different opinions about the correct level of stimulus with better outlooks of growth and inflation. Into a perspective of economic growth, it matters crucially whether the financial system is able to relay efficiently monetary policy impulses to the economy. In the euro area, that transmission mechanism has been impeded repeatedly in the past, initially by rising risk premia linked to unwarranted fears about the survival of the euro area, and later by widespread bank deleveraging. It is necessary in this respect to debate and to evaluate the consequence of the restrictive regulation and supervisory policy of banks with regard to capital adequacy framework. Policy interventions would need to go well beyond the new capital and liquidity regulatory framework, to support and not delay the effectiveness of the measures of monetary policy.