Market neutrality not mandated, says ECB’s Elderson

January 26, 2021|Written by Camilla Schramek|European Central Bank

Frank Elderson, an executive board member of the European Central Bank (ECB), said market neutrality in asset purchases and other monetary operations is not part of the bank’s mandate.

Elderson pointed to the ECB’s mandate as defined in the Treaty on the Functioning of the European Union. His statement contributes to an ECB debate on whether to maintain this principle amid calls for the bank to instead align its activities with the Paris Agreement.

Speaking at a public hearing of the European Parliament’s Economic and Monetary Affairs Committee, Elderson was specifically asked about market neutrality by MEP Paul Tang. “If the markets do not price climate risk already, or accurately – shouldn’t that be reflected in monetary policy?” Tang asked. “Is the concept of market neutrality, as it is being used right now, accurate?”

“The principle of market neutrality is not part of the Treaty,” replied Elderson. “There will be an opportunity in the strategy review of the governing council to revisit the way we interpreted the mandate and especially this principle [of market neutrality]. I think that we will be discussing quite in depth as to how we can also in our monetary policy take into consideration the changes caused by climate change.”

Researchers and campaigning groups say that the very idea of market neutrality is a myth, and is conceptually at odds with any central bank interventions to change market outcomes. They say that there are already demonstrated biases in current asset purchases, including bias in favour of high-emission sectors.

A recent report found that, far from preventing the distortion of market outcomes, ECB asset purchases are heavily biased towards sectors with a high contribution to greenhouse gas emissions.

Previously an executive board of De Nederlandsche Bank, Elderson has been appointed vice-chair of the ECB’s supervisory board, the body that undertakes supervisory tasks and proposes draft decisions to the governing council. He is both chair of the Network for Greening the Financial System, and co-chair of the Basel Committee’s Task Force on Climate-Related Risks – the two primary global central bank networks focused on climate change.

This page was last updated April 26, 2021

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