Ojo, Marianne (2010): The role of monetary policy in matters relating to financial stability: Monetary policy responses adopted during the most recent Financial Crisis.
Download (107Kb) | Preview
As well as providing an analysis of how financial stability could be sustained through the appropriate targeting of policy instruments at debt gearing, this paper aims to provide an overview of the respective roles which governments and shareholders could assume in deterring financial institutions from overly relying on certain policy measures (role of governments) and in reducing tax burdens on tax payers (role of shareholders). The duration of the recent Crisis has also witnessed the introduction of mechanisms aimed at bailing- in financial institutions – rather than merely bailing them out.
Even though monetary policy measures should ultimately be targeted at macro level, the respective roles assumed by governments and shareholders at micro level in facilitating the phasing out of certain monetary policy measures and assuming responsibility as the first resort during the impending collapse of a financial institution, are also of vital importance. This paper also aims to consider additional measures which could be implemented as a means of mitigating the number of financial instititions which could become overly dependent on monetary policy and liquidity sustenance measures provided during deteriorating financial conditions. Greater focus on strategies aimed at mitigating the number of financial institutions which could become overly dependent (bail-in strategies which could address bail outs) – rather than simply focussing on measures and exit strategies aimed at weaning such institutions after assistance has been granted to these financial institutions, could prove to be more effective.
A brief comparative analysis of the monetary policy response implemented in the Euro area during the recent Financial Crisis (against that which was implemented in the United States), will also be provided in this paper.
|Item Type:||MPRA Paper|
|Original Title:||The role of monetary policy in matters relating to financial stability: Monetary policy responses adopted during the most recent Financial Crisis|
|Keywords:||monetary policy; central banks; financial crises; bail in; bail outs; liquidity; ECB; Federal Reserve; interest rates; regulation; stability; capital; Basel III|
|Subjects:||E - Macroeconomics and Monetary Economics > E0 - General > E02 - Institutions and the Macroeconomy
K - Law and Economics > K2 - Regulation and Business Law
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy
G - Financial Economics > G0 - General > G01 - Financial Crises
|Depositing User:||Dr Marianne Ojo|
|Date Deposited:||23. Nov 2010 09:51|
|Last Modified:||11. Feb 2013 19:42|
Association for Financial Markets in Europe, “AFME Outlines Ways To Rescue Failing Banks Without Tax Payer Financing” http://www.afme.eu/AFME/Home/sifi%20pr.pdf
Basel Committee on Banking Supervision, Consultative Document “Proposal to Ensure the Loss Absorbency of Regulatory Capital at the Point of Non Viability” August 2010 < http://www.bis.org/publ/bcbs174.pdf?noframes=1>
“Basel Committee Says Bank Bond Investors Should Help Fund Future Bailouts” <http://www.bloomberg.com/news/2010-08-19/basel-committee-says-bank-bond-investors-should-help-bear-cost-of-bailouts.html>
Kohn D, „Monetary Policy in the Financial Crisis“ Federal Reserve Board Publications April 2009 <http://www.federalreserve.gov/newsevents/speech/kohn20090418a.htm>
Miles D, „Leverage and Monetary Policy“, Speech given at the Economic and Social Research Institute Foundation for Fiscal Studies, 12 October 2010 <http://www.bis.org/review/r101018e.pdf>
The Recapitalisation Communication (Communication from the Commission — The recapitalisation of financial institutions in the current financial crisis: limitation of aid to the minimum necessary and safeguards against undue distortions of competition )
Tumpel-Gugerell G, „The Interplay of Banking, Financial Intermediation and Regulation.“at the 13th Conference of the European Central Bank–Center for Financial Studies (ECB–CFS) Research Network on “Macro-prudential Regulation as an Approach to Contain Systemic Risk: Economic Foundations, Diagnostic Tools and Policy Instruments”, Frankfurt am Main, 27 September 2010 <http://www.bis.org/review/r100929e.pdf>
Weber A, Keynote Speech at the Shadow Open Market Committee (SOMC) Symposium, New York City, 12 October 2010 „Monetary Policy After the Crisis: A European Perspective“ <http://www.bis.org/review/r101018a.pdf>