Stress test: transforming the ECB in 2014

In 2014 the European Central Bank (ECB) will take on one of the biggest and most complex banking supervision roles in the world. For the ECB this is an institutional, cultural and political transformation. It faces the double challenge of doing it when the Eurozone banking system is in poor shape, and when that banking sector weakness is undermining the ECB’s other core role in setting monetary policy. Three big practical tasks lie ahead in 2014, culminating in a stress test of Eurozone banks. The problem for the ECB is that it is undertaking this massive practical task with its credibility as yet untested and a political mandate that is ambiguous at best. For investors, creditors and customers of Eurozone banks how the ECB navigates this problem will be one of the big stories of 2014.