ECB Explained: What Is The European Central Bank?

Among the world’s numerous central banks, the European Central Bank (ECB) is arguably one of the most important and economically powerful ones. 

In this article, we delve into the ECB, what it is, how it affects the Eurozone’s and global economies, and what it comprises. 

Let’s dive in:

TL;DR

• The European Central Bank (ECB) is the central bank of the Eurozone, responsible for managing the euro and ensuring economic stability.

• The ECB supervises banks, manages monetary policy, controls money supply, and conducts foreign exchange operations.

• The Governing Council holds a meeting every 6 weeks to decide on interest rates. Decisions are announced at 14:15 CET, followed by a press conference at 14:30 or 14:45 CET.

• History:

  • 1994: European Monetary Institute (EMI) founded.

  • 1998: The ECB was established to maintain price stability for the adoption of the euro.

  • 2009: Treaty of Lisbon grants the status of an official EU institution.

  • 2023: Croatia becomes the latest country to join the ECB.

• ECB Structure:

  • Governing Council: Sets monetary policy.

  • Executive Board: Implements policy and manages day-to-day operations.

  • General Council: Addresses euro adoption matters.

  • Supervisory Board: Oversees the financial supervision of banks.

What Is the ECB?

The ECB (European Central Bank) is the EU’s central banking system, responsible for overseeing other financial institutions and central banks as well as deciding on monetary policy for countries using the euro as their national currency.  (Source: European Central Bank)

ECB History & Background

• 1994-1998: The European Monetary Institute (EMI), the ECB’s forerunner, was created on 1 January 1994 as the monetary institution for the European Union and succeeded the European Central Bank (ECB). The ECB and the European System of Central Banks (ESCB) replaced the EMI, which was dissolved on 1 July 1997.

• June 1998: The Treaty of Amsterdam established the ECB to maintain price stability in preparation for the adoption of the euro as the EZ’s national currency. 

• December 2009: The Treaty of Lisbon came into effect, granting the ECB its official status as an EU institution. 

• January 2001: Greece was added to the ECB (which had 11 members). 

• January 2007: Slovenia joined the ECB. 

• January 2008: Cyprus and Malta joined the ECB. 

• January 2009: Estonia joined the ECB. 

• January 2015: Lithuania joined the ECB. 

• January 2023: Croatia joined the ECB. 

ECB Structure

The ECB operates through four main decision-making bodies:

Governing Council: 

The central decision-making body for setting monetary policy. It consists of the six members of the Executive Board and the governors of the national central banks of the 20 euro area countries.

Executive Board:

Oversees daily operations and carries out the monetary policy set by the Governing Council. The board is made up of the President, Vice-President, and four additional members, each serving a non-renewable eight-year term.

General Council:

It focuses on transitional matters related to the adoption of the euro. This body will be disbanded once all EU countries adopt the euro. The President, Vice President, and the central bank governors of all the EU countries make up this body. It will be dissolved once the euro is adopted by every EU country.

Supervisory Board:

Oversees the ECB’s supervisory responsibilities, particularly the prudential supervision of credit institutions. It includes a Chair, a Vice-Chair, four ECB representatives, and members from national supervisory authorities.

What Does the ECB Do?

The European Central Bank (ECB) oversees approximately 120 commercial and central banks within the Eurozone. The ECB is responsible for developing monetary policies that promote economic stability and bolster the euro's economic position. Moreover, the ECB issues banknotes, hence controlling the money supply and availability. The ECB can also grant and withdraw banking licenses, supervise reviews, counter financial risk, and conduct foreign exchange operations and manage the EZ's forex reserves. (Source: Corporate Finance Institute)

The Next ECB Meeting: When Does the ECB Meet to Decide on Interest Rates?

Generally speaking, the ECB Governing Council meets every 6 weeks to determine interest rates. 

Although the Governing Council convenes twice a month, only the meetings focused on monetary policy (usually held on Thursdays) are dedicated to setting key interest rates and other related measures. 

Following each policy meeting, the ECB issues a press release at 14:15 CET to announce its decisions, followed by a press conference led by the President and Vice-President at 14:30 or 14:45 CET. This schedule remains consistent throughout the year, with typically eight monetary policy meetings taking place annually.

Conclusion

The European Central Bank (ECB) plays a crucial role in shaping the Eurozone’s economy and influencing global financial markets. From its history and structure to its key responsibilities, the ECB is essential for maintaining price stability and economic growth across the region. The ECB plays a key role in the financial world by holding regular meetings and making decisions on monetary policy.

FAQs:

Who is the ECB president

The President of the European Central Bank (ECB) as of April 2025 is Christine Lagarde.

How often does the ECB meet?

The Governing Council of the ECB convenes every six weeks to determine monetary policy.

Who is part of the ECB’s Governing Council?

It includes the six members of the Executive Board and the governors of the national central banks of the 20 euro area countries.

What does the ECB do beyond setting interest rates?

The ECB supervises banks, issues banknotes, manages the Eurozone’s money supply, and oversees financial stability.

When are ECB monetary policy decisions announced?

Decisions are announced via press release at 14:15 CET, followed by a press conference at 14:30 or 14:45 CET.