Redefining a role for central banks: The increased importance of central banks’ roles in the management of liquidity risks and macro prudential supervision in the aftermath of the Financial Crisis

Ojo, Marianne (2010): Redefining a role for central banks: The increased importance of central banks’ roles in the management of liquidity risks and macro prudential supervision in the aftermath of the Financial Crisis.

Abstract

Over the recent years, it has increasingly been acknowledged that macro prudential policies are not only considered to be “a missing ingredient from the current policy framework”, but that there has also been “too huge a gap between macro economic policy and the regulation of individual financial institutions.”

The link between monetary policy and macro prudential policies, the knowledge of central banks in matters relating to information on market conditions and their oversight of payment systems, as well as the need to bridge the existing gap between supervisory authorities and central banks whilst executing their supervisory roles and functions, have necessitated an extension of central banks role in the management of liquidity risks and macro prudential supervision.

A fundamental aim of this paper is to address how an extension of central banks’ roles in macro prudential supervision can assist regulators and supervisors in bridging the afore mentioned gap between macro economic policy and the regulation of individual financial institutions. In so doing, the need for greater focus on macro prudential factors, namely, the system as a whole, as opposed to mere focus on the supervision of individual institutions will be highlighted. The expertise and knowledge with which a central bank is endowed in its role as overseer of the entire payments system – as well as the quality of information which it has access to, are some of those factors which add weight to its ability to bridge “the gap”.

• Item Type: MPRA Paper
• Language: English
• Keywords: macroprudential; Financial Crisis; central banks; Basel III; systemic risk; supervision; liquidity; information; Banking Reform Act; Financial Services Act; regulators
• 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 > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles; G - Financial Economics > G0 - General > G01 - Financial Crises

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