The Legitimacy of the European Systemic Risk Board in Respect of its Performance, Roles and Contributions to the Financial Regulatory System

Abstract

The European Systemic Risk Board (ESRB) is an institutional innovation within the European System for Financial Supervision that was put in place as a direct response to the Global Financial Crisis in 2007-2008. The ESRB is responsible for the macroprudential oversight, prevention and mitigation of systemic risk in support of financial stability. This article offers a structured discussion of legitimacy-related issues that arise with respect to the ESRB's performance, role and contribution to the financial regulatory system. In all three instances, a closer examination of the characteristics of the ESRB reveals that there exist factors that are conducive to its legitimacy, but also that there are circumstances that give grounds for concern. The article suggests that legitimacy-related questions are less frequently addressed in the literature on financial regulation than those discussing the effectiveness of various regulatory tools and approaches. Since the two aspects are closely related, important considerations might go amiss if prerequisites of legitimacy in regulatory arrangements are not properly accounted for in policymaking processes. The article recommends that questions of legitimacy be more clearly inserted into regulatory deliberations to ensure robust regulatory and supervisory systems capable of contributing meaningfully to the public good.