In assessing the two models, a key issue to consider concerns the conflict of interests, in particular within the central bank and within the supervisory authority, respectively. Let’s consider first the conflicts of interest within the central bank, which would emerge in particular in Model 2, between the objective of price stability and the objective of macrofinancial stability.
A conflict would arise if the central bank would have to address the two objectives with only one instrument, i.e. the interest rate. The central bank could be pushed to use the interest rate not only to achieve price stability but also to counter macro systemic risks.