Why Study Central Bank Governance?

Hi my dear friend x Hope you are ok and are having a nice week. It is rainy today and the temperature got down several degrees here, after of so many days so hot, at last, the rain and a little of cold arrived. I would have liked to write to you before, Ken, especially because since days ago I am thinking of you had to visit your doctor again this week, if I don't reckon wrong, and well, to tell you that I hope all is well with you.

The Federal Reserve System is the most powerful institution in the United States economy. Functioning as the central bank of the United States, acting as a regulator, the lender of last resort, and setting the nation’s monetary policy via the Federal Open Market Committee, there is no segment of the American economy unaffected by the Federal Reserve [endnoteRef:1]. This power becomes even more substantial in times of “unusual and exigent circumstances,” as Section 13(3) of the Federal Reserve Act gives authority to the Board of Governors to act unilaterally in lending and market making operations during financial crisis[endnoteRef:2]. As illustrated by their decision making in the aftermath of the 2007-2008 Great Recession,

Intervention by the central bank is warranted to avoid welfare loss for the institution’s stakeholders since it may be that due to access to supervisory information, the authorities are in a better position to evaluate the financial position of a bank rather than the inter-bank market. The other situation in which the central bank may be the LOLR is when the stability of the entire financial system may be threatened following the failure of a solvent bank. This widespread financial instability may put to risk the ability of the financial system to carry out its primary functions.

This fills a gap in introducing the reader to economical problems that were triggered due to this banking collapse such as macroeconomic problems. Which I will include in to paper to furthermore give the reader a more global approach in how the economy plays a significant role in our day to days lives.

The primary objective during a time of financial crisis, for all central banks, is stability. They try to obtain this stability by attempting to do the following; implementing low and stable inflation, having high and stable real growth, along with high employment, sustaining stable financial markets and institutions, maintaining stable interest rates, and creating a stable exchange rate. It is impossible to achieve all of these objectives at once, therefore tradeoffs must be made. Too much instability in one of the five objectives could result in economy-wide risk. The United States subsequently failed in 3 or more of these objectives causing the financial crisis. The first they failed in was low and

Richter Franziska, Wahl, Peter: The Role of the European Central Bank in the Financial Crash and the Crisis of

This chapter is about the background of 2007-2008 financial crisis. The 2007-2008 financial crisis has a huge impact on US banking system and how the banks operate and how they are regulated after the financial turmoil. This financial crisis started with difficulty of rolling over asset backed commercial papers in the summer of 2007 due to uncertainty on the liquidity of mortgage backed securities and questions about the soundness of banks and non-bank financial institutes when interest rate continued to go up at a faster pace since 2004. In March 2008 the second wave of liquidity loss occurred after US government decided to bailout Bear Stearns and some commercial banks, then other financial institutions took it as a warning of financial difficulty of their peers. In the meantime banks started hoarding cash and reserve instead of lending out to fellow banks and corporations. The third wave of credit crunch which eventually brought down US financial system and spread over the globe was Lehman Brother’s bankruptcy in August 2008. Many major commercial banks in US held structured products and commercial papers of Lehman Brother, as a result, they suffered a great loss as Lehman Brother went into insolvency. This panic of bank insolvency caused loss of liquidity in both commercial paper market and inter-bank market. Still banks were reluctant to turn to US government or Federal Reserve as this kind of action might indicate delicacy of

While researching text written on the effects of global financial crisis 2008-2009 on Brazil?s economy, I found some financial analysts that had published documentations in reference to the impact on the Brazilian economy. These authors discussed in research papers, financial journals, newspapers, pamphlets, and brochures on how Brazil?s state and local-owned banks, international banks and its government and monetary policies reactions to the global financial crisis 2008-2009. My goals in this paper, is to examine the impacts of the global financial crisis on the Brazil?s economy, and measures taken by government regulatory and banking policies that led to mitigating the impact of the global financial crisis of 2008-2009.

A new drug development process starts with animal testing, before it is been tested in humans. These animal studies are designed to ensure that the drug is effective and safe in animals. Moreover, the results obtained should be reproducible. But even the reproducible results on animal studies cannot provide relevant prediction of the safe and effectiveness of a new drug.

To first understand if the European Central Bank has been captured, we should recognize what capture would look

* Strengthen the soundness and the stability of the international banking system – minimum capital adequacy ratio by assessing the credit risk of the banks

Facing the problems posed by an unstable global financing market, the BCBS set the following intertwined goals: to develop a comprehensive set of standards on capital flows, to implement those standards in the absence of legitimate international treaties or law, and for that to happen, to maximize their own enforcement power through guidance and supervision. It is in the interest of every nation to maintain its own competitiveness while refraining from harming the stability of the global financial system. However, these two goals are not always compatible with one another.

This weeks unit covered the different thoughts on economic stabilization; Keynesian and Neo Classical, as well as money and its role with banking. It explained the main foundation of Keynesian is that the price is mainly stationary while the aggregate demand is what will cause growth or recession. It views aggregate demand being influenced by; consumption, investments, government spending, and net exports. The supply and price is set by how much of a product is desired by the market and in times of recession government spending should be used to stabilize and stimulate economic growth. Neo classical on the other hand believes in looking at the long run and does not believe in focusing on short term problems such as recess, as these will naturally work themselves out. Neo Classical sees no benefit to inflation and puts more emphasis on the supply curve as a primary factor as to what determines aggregate demand. Lastly, money is the primary means of currency to trade goods and services to avoid needing a “Double Coincidence of wants”. The banks primary job is to act as a giant money pot where people put money they want to save for later into and they by allowing someone else to use that money in the mean time, understanding that individual will pay the money back. Banks act as the middle man and control factor of saving and borrowing of currency on a macroeconomic level. A banks “balance sheet” also known as “T account’ shows the overall health of the bank by

The financial instability of the past few years has provided important evidence that can be used for the detection of dangerous flaws in the international banking system. After the financial crisis of 2008- 2009, the Basel Committee on Banking Supervision made significant steps in improving understanding the key supervisory issues and improvement of banking regulation worldwide. Subsequently, new standards were created for banking system regulation, which represents upgraded capital requirements, liquidity norms, and additional monitoring tools for banking supervision and regulation. These standards were first established in 2009 by the BCBS though some of the Committee’s proposals remain currently open for discussion.

Besides, the governance bodies are interested in coordinating specific mechanisms regarding accountability, legitimacy, and transparency (Jackson, 2008). Consequently, they emphasize on transparency, bureaucratic participation, reasoned decisions, and accessibility to assessment mechanisms. Besides, they focus on circumvention of unnecessary measures and illegitimate avoidance expectations (Busch & Reinhardt, 2003). Global governance is made up of an incongruent assortment of regulatory entities that facilitate decision making and administrative activities facing member states. Such bodies include Basel Committee that regulate and supervise banking sector through of the territories of the member states. This committee liaises between governments of the member countries, the secretariat of the global governance entities and the banks.