ECB’s Nagel Highlights Central Banks’ Evolving Role in Safeguarding Financial Stability

6 November 2025

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Joachim Nagel on Thursday said financial stability has always been integral to central banking, though its prominence has fluctuated over time, and warned that the challenges to safeguarding it are constantly changing.

Speaking at the 20th anniversary celebration of the Financial Stability Review of the Bundesbank, Nagel said the topic’s relevance long pre-dated the publication itself. He cited the 19th-century Bank of England’s crisis interventions and the founding of the U.S. Federal Reserve in 1913 as early examples of central banks acting to maintain stability.

While the mid-20th century saw monetary policy’s focus shift toward price stability and employment, financial crises from the 1980s onward had brought the issue back to the fore, he said. “The link between central banks and the objective of financial stability is a very long-standing one,” he said.

The Bundesbank first discussed financial-stability issues in its Monthly Report before launching its own Financial Stability Review in 2005, following the Bank of England’s example, he recalled. He quoted former Bundesbank President Axel Weber’s assessment that “financial stability is of crucial importance not only for monetary stability but also as a topic in its own right.”

The 2007-08 global financial crisis had exposed the fragility of the international system and triggered fundamental institutional change, he said. In Germany, the Bundesbank established a dedicated Directorate General Financial Stability in 2009 and, from 2013, gained a formal mandate under the Financial Stability Act alongside BaFin and the Finance Ministry.

Nagel said that the global crisis also led to the creation of the Financial Stability Board in 2009 and the European Systemic Risk Board in 2010, as well as the introduction of Basel III, which strengthened banks’ capital positions and introduced macroprudential tools.

“Nowadays, financial stability is an integral part of central banks’ mandate,” he said. Macroprudential oversight, systemic-risk analysis and policy consultation are now firmly embedded, he added, noting that central banks had “gone back to their roots.”

Nagel cautioned that the work of safeguarding stability was never complete and that new risks were emerging. He cited recent bankruptcies and banking difficulties in the United States and said the Bundesbank was monitoring developments closely.

“New risks could also arise as a result of the structural change unfolding in the real economy and the financial system, the rapid development of artificial intelligence, and ongoing geopolitical developments,” he said.