The instruments of financial stability – a legal and conceptual analysis of the ECB’s toolbox

Central banks are often said to have a natural interest in financial stability. However, financial stability as such does not occupy a prominent place in the ECB’s Treaty mandate. To address this puzzle, the chapter analyses the extent to which financial stability is, or has since the crisis become, a part of the mandate of the ECB, both in law and in practice. Drawing on economic and legal discussions we show the lack of clarity as to the precise meaning of financial stability. We argue that going beyond the Treaty articles and looking closer at ECB’s recent operation provides a more accurate picture of the role that financial stability plays in its mandate. We analyse how the concept was relevant in the deployment of the various central bank instruments identified by Padoa-Schioppa (monetary policy strategy, crisis management, payment system operation). Our findings confirm the relevance of financial stability has significantly increased for the ECB, albeit in a differentiated manner