The Relationship Between Central Bank ( Cb ) Roles And Banking Crisis

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Methodology Paper What is the relationship between central bank (CB) roles and banking crisis of a country? The CB can utilize its monetary instruments to bail out the insolvent banks and therefore keep the banking system still functioning (Khan, Khan and Dewan, 2013). However, the efficiency of utilizing this monetary instrument depends on the governance of the CB. The governance of CB consists of three essential elements, independency, accountability and transparency (Amtenbrink, 2004; Dincer and Eichengreen, 2014). The CB role on influencing the impact of crisis may not happen if there is a political influence from the government, such as the legislative and the executive. The legislative and executive bodies can intervene the…show more content…
On other situations, the CB may not take the subsequent steps to overcome the crisis. These conditions would not happen if CB has implemented the accountability and transparency. Considering the aforementioned institutional issues, the primary research question that the research is designed to answer is: Does the CB governance matter in reducing the probability of the banking crisis? The review of the literature suggested that there are three essential elements of CB governance: independence, accountability and transparency. So, the research’s first hypothesis is stated as follows: the more independent a CB, the less probability of a country experiences a banking crisis. The second hypothesis is the more transparent and accountable CB, the less unstable of banking sector in a country. Based on the research question and the developed hypothesis, the research will utilize the quantitative approach. The ultimate goal of quantitative study is to find generalization on large number of case based on different variables or to examine the causal phenomenon of numerical variables (King, Keohane and Verba, 1994). The regression analysis will be used throughout the study, it is not sophisticated but it is still powerful in the social science. Utilizing the rational choice approach as a starting point, the study will first explore the factors that have determined the banking crisis. Based
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