24 Sep 2021
Europe, Financial sector, External Publications

The Tail Wagging the Dog? Overcoming Financial Dominance

The idea of financial dominance has gained some notoriety in recent years as a further constraint on central bank policymaking. This paper examines the reality of financial dominance and how the financial sector may be an impediment to the necessary unwinding of all unconventional monetary policies in Europe. In line with the existing literature, I conclude that the financial sector has been made more vulnerable as a result of quantitative easing – and allowing the financial tail to wag the monetary dog will lead to only more vulnerability. This paper was provided by the Policy Department for Economic, Scientific and Quality of Life Policies at the request of the committee on Economic and Monetary Affairs (ECON) ahead of the Monetary Dialogue with the ECB President on 27 September 2021.


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The paper was prepared within the framework service contract which is intended to support the work of ECON in the European Parliament by enabling it to seek independent expert advice in the field of monetary and economic affairs to support its scrutiny activity, in particular in the context of the Monetary Dialogues between ECON with the European Central Bank (ECB). Expertise is requested on a wide range of issues relevant to the work of ECON in relation to EU economic and monetary integration, including governance and institutional aspects, as appropriate.