What is the 'European Central Bank - ECB'

The European Central Bank (ECB) is the central bank responsible for monetary policy of those European Union (EU) member countries which have adopted the euro currency. This region is known as the euro area or eurozone and currently comprises 19 members. The principal goal of the ECB is to maintain price stability in the euro area, thus helping preserve the purchasing power of the euro.

BREAKING DOWN 'European Central Bank - ECB'

The European Central Bank (ECB) is headquartered in Frankfurt am Main, Germany. It has been responsible for monetary policy in the Euro area since January 1, 1999, when the euro currency was first adopted by some EU members. The ECB Governing Council is the body within the ECB that actually takes decisions on euro area monetary policy. The Council consists of six executive board members and the governor (or equivalent) of each member's national central bank. As membership of the Euro area has expanded, so the Governing Council has increased. It has a system of rotating voting rights among the national bank governors (the executive board members have permanent voting rights), as the Governing Council is now too large for all members to vote at each meeting.

The primary responsibility of the ECB linked to its main goal of price stability is formulating monetary policy. This involves making decisions about monetary objectives, key interest rates, the supply of reserves in the Eurosystem and establishing guidelines for implementing those decisions. Monetary policy decision meetings are held every six weeks, and the ECB is transparent about the reasoning behind its decisions. It holds a press conference after each such meeting, and later publishes the minutes of the meeting.

The Eurosystem comprises the ECB and the national member states' central banks. The Eurosystem is responsible for the practical implementation of ECB policy (such as implementing policy, actually holding and managing foreign reserves, operating in the foreign exchange market, and ensuring the payments system runs smoothly.)

The ECB is also the EU body responsible for banking supervision. In conjunction with national central bank supervisors, it operates what is called the Single Supervisory Mechanism (SSM). The decisions involved in this function are mainly aimed at ensuring the safety and soundness of the European banking system. Part of the rationale for the SSM is to ensure consistent banking supervision practices across member country banking systems — lax supervision in some member countries had been part of the cause of the European financial crisis that started in 2008. The SSM began functioning in November 2014. All euro area countries are in the SSM; non-euro EU countries can choose to join.

RELATED TERMS
  1. ECB Announcement

    ECB Announcement is an announcement by the European Central Bank ...
  2. Euro Notes

    Euro notes are legal tender in the form of a banknote that can ...
  3. Central Bank

    The entity responsible for overseeing the monetary system for ...
  4. European Monetary System - EMS

    The European Monetary System (EMS) is an arrangement between ...
  5. Euro

    The euro is the official currency of 19 members of the European ...
  6. Federal Reserve System

    The Federal Reserve System is the central bank of the United ...
Related Articles
  1. Insights

    5 Times the European Central Bank Got It Right This Century

    Find out how the ECB made the right moves in pulling the eurozone through many difficult periods despite skepticism the euro would stand the test of time.
  2. Insights

    Slower for Longer: ECB Tapers Bond Buying

    The ECB has reduced its monthly bond buying program by €20 billion per month.
  3. Investing

    Get To Know The Major Central Banks

    The policies of these banks affect the currency market like nothing else. See what makes them tick.
  4. Insights

    Why These European Countries Don't Use the Euro

    The euro is a common currency of the European Union. Yet, many EU countries don’t use the euro. Investopedia explores why.
  5. Trading

    ECB Rate Cuts, Possible European QE Lift Stocks

    Following Thursday's meeting of the Governing Council of the European Central Bank (ECB) in Malta, President Mario Draghi held a press conference in which he hinted that further interest rate ...
  6. Investing

    European Banks: Growth in 2016?

    Understand the potential growth drivers of the European banking sector and whether 2016 will be a year of growth or continued stagnation.
  7. Trading

    The top 8 most tradable currencies

    Currencies can provide diversification for a portfolio that's in a rut. Find out which ones you need to know.
  8. Investing

    Draghi Wants to 'Avoid Fire Sales' in Euro Banks

    Today the European Central Bank left interest rates unchanged, leaving the bank's refinancing rate at zero and the deposit rate at -0.4%.
  9. Insights

    Top 4 Central Banks Dominating the World Economy

    Central banks play an integral role in market economies by maintaining the stability and credibility of national currencies used in those economies.
  10. Insights

    Who Is Mario Draghi?

    Mario Draghi is an Italian economist who is the president of the European Central Bank (term: 2011-2019).
RELATED FAQS
  1. Why doesn't England use the euro?

    Understand why the United Kingdom has opted to not join the eurozone in adopting the euro over the pound sterling as its ... Read Answer >>
  2. How does monetary policy influence inflation?

    Take a deeper look at how contemporary central banks attempt to target and control the level of inflation through monetary ... Read Answer >>
  3. What are some examples of expansionary monetary policy?

    Learn about expansionary monetary policy and how central banks use discount rates, reserve ratios and purchases of securities ... Read Answer >>
  4. How Central Banks Influence Money Supply

    Central banks use several different methods to increase (or decrease) the amount of money in the banking system. Learn more ... Read Answer >>
Hot Definitions
  1. Investment Advisor

    An investment advisor is any person or group that makes investment recommendations or conducts securities analysis in return ...
  2. Gross Margin

    A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. ...
  3. Inflation

    Inflation is the rate at which prices for goods and services is rising and the worth of currency is dropping.
  4. Discount Rate

    Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
  5. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  6. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
Trading Center