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JSPES, Vol. 41, No. 4 (Winter 2016)
pp. 3–41

Preparing Central Banks Before the Next Systemic Crisis

Georges Ugeux
Columbia Law School

This article addresses the question whether central banks will be resilient and effective in a future financial crisis, focusing on the last decade when the largest central banks increased their influence. The article sets out how fiscal and monetary policies became intertwined as a direct result of government over- indebtedness and lack of fiscal discipline. The long aftermath of the financial crisis exposed the limits of central bank interventions. The growing reliance on central banks throughout the last decade coincided with an intensified interdependence between governments, banks and central banks. The effects of central banks’ loss of independence from governments has been compounded by their closeness to the banking sector that they regulate and supervise. By being “too complex to manage”, central banks operate under an impaired ability to act promptly during a crisis. They should therefore consider a new governance model that defines their functional autonomy.