Competition and credit control: some personal reflections

2015 ◽  
Vol 22 (2) ◽  
pp. 235-246 ◽  
Author(s):  
Charles A. E. Goodhart
Keyword(s):  
Control System ◽  
Private Sector ◽  
Interest Rates ◽  
Bank Lending ◽  
Open Market ◽  
Direct Control ◽  
Market Mechanisms ◽  
Monetary Authorities ◽  
Personal Reflections ◽  
Partial Reversion

The Bank of England's ‘consultative document’ on Competition and Credit Control (C&CC) was published on 14 May 1971. It was a landmark occasion, representing a decisive break with the prior system of maintaining direct controls over bank lending to the private sector; the intention was now to achieve the monetary authorities’ objectives of policy via the operation of market mechanisms, notably adjustments in interest rates and open market operations. Although the ‘credit control’ aspect was, over the next few years, notably less successful than the encouragement of competition amongst the banks (where the London clearing banks previously had maintained a restrictive cartel with the support of the authorities), nevertheless the direction of travel towards a more liberal, market-based system, remained, despite a partial reversion towards a direct control system in the guise of the ‘corset’, introduced at the end of 1973, and finally laid to rest in June 1980.

scholarly journals Monetary Policy and Domestic Investment in Nigeria: The Role of the Inflation Rate

2020 ◽  
Vol 34 (1) ◽  
pp. 139-155
Author(s):  
Obinna Franklin Ezeibekwe
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Money Supply ◽  
Inflation Rate ◽  
Bank Lending ◽  
Policy Tools ◽  
Open Market ◽  
Domestic Investment ◽  
Inflation Rates ◽  
The Impact

AbstractEconomic theory suggests that monetary policy can be used to stabilize an economy. However, the ability of monetary policy targets—interest rates and money supply—to stabilize an economy depends on their ability to achieve price stability. Using data from 1981 to 2018 and applying the vector error correction model, this paper seeks to determine how the changes in the inflation rate affect the ability of monetary policy tools to stabilize the Nigerian economy and stimulate investment. Empirical results suggest that the impact of the interest rates on investment depends on the level of the inflation rate. The size of the effect of interest rates on investment gets weaker as the inflation rate increases suggesting that monetary policy tools, such as the monetary policy rate (MPR), that directly change the interest rates are robust stabilization tools during periods of declining inflation rates but not relevant during periods of rising inflation rates. This is attributable to low bank lending rates. Additionally, the impact of the money supply target on investment does not depend on the level of the inflation rate. This suggests that monetary policy tools, such as open market operations, that directly change the money supply can be relevant stabilization tools during economic booms and recessions. As a result, the Central Bank of Nigeria should work to deepen the scale, capacity, and efficiency of its open market operations by ensuring that most of the people can participate with minimal transaction cost and by making different financial instruments available.

scholarly journals Effect of Interest Rates on Private Sector Debt in Kenya

2020 ◽  
Vol 8 (4) ◽  
pp. p21
Author(s):  
Philip Njau Kibunja ◽  
Olanrewaju Isola Fatoki
Keyword(s):  
Private Sector ◽  
Interest Rates ◽  
Commercial Bank ◽  
Banking Sector ◽  
Weighted Average ◽  
Bank Lending ◽  
Domestic Debt ◽  
Lending Rate ◽  
Debt Market ◽  
Independent Variable

This study sought to examine the effect of interest rates on domestic private sector debt in Kenya over the 30 year period from 1990 to 2019. The dependent variable was private sector domestic debt, the independent variable was commercial bank weighted average lending rate while the control variables were annual GDP growth, extended broad money (M3) and annual USD-KES exchange rate. Using the Prais-Winstein estimator model, the regression model findings were commercial bank lending rate had an insignificant relationship with domestic debt at 95% confidence level but significant at 90% level while money supply had a negative and significant relationship with domestic debt. The study noted predominance of the banking sector in the financial sector and identified the need of a well-developed corporate debt market.

scholarly journals Monetary Conditions Index: A Composite Measure of Monetary Policy in Pakistan

2002 ◽  
Vol 41 (4II) ◽  
pp. 551-566 ◽  
Author(s):  
Abdul Qayyum
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Interest Rates ◽  
Open Economy ◽  
Bank Lending ◽  
Open Market ◽  
Short Term ◽  
Rate Effects ◽  
The Interest Rate

Accurate measures of the size and direction of changes in monetary policy are very important. A number of variables/indicators have been used as a measure of the stance of monetary policy the world over. These include growth rates of monetary aggregates and credit aggregates, short-term interest rate as used by Sims (1992), index of minutes of Federal Open Market Committee (FOMC), as suggested by Friedman and Schwartz (1963) and reintroduced by Romer and Romer (1989), monetary policy index constructed by employing Vector Autoregression (VAR) estimation technique with prior information from Central Bank such as Bernanke and Blinder (1992) and Bernanke and Mihov (1998), and Monetary Conditions Index (MCI)—which is the focus of this paper—constructed by and used by Bank of Canada [Freedman (1995)], taking into consideration the interest rate and exchange rate channel of monetary policy transmission mechanism in a small open economy. In case of open economy it is assumed that the monetary policy affects the economy and the prime objective of monetary policy, rate of inflation, through two important transmission mechanisms. These transmission channels are; interest rate channel and exchange rate channel. The working of the first channel is that the interest rate influences the level of expenditures, investment and subsequently domestic demand. The change in official interest rate effects the market rates of interest both short term as well as long term interest rates. This change in market rates of interest is transmitted to the bank lending rates and saving rates. The change in saving rate effects the spending behaviour of individuals (consumption) whereas the change in bank lending rate effects the investment behaviour of firms (investment). The change in aggregate consumption and investment has direct link to the gross domestic product (GDP).

Adjusting to Financial Instability in the Interwar Period

2018 ◽  
Author(s):  
Giandomenico Piluso
Keyword(s):  
Private Sector ◽  
Adaptive Strategy ◽  
World War ◽  
The Public ◽  
International Environment ◽  
The First World War ◽  
Monetary Authorities ◽  
The Public Sphere ◽  
Special Committees ◽  
First World

The chapter provides a reconstruction and analysis of adjustment processes in the Italian financial system after the major cleavage of the First World War. It considers how pressures exerted by external factors entailed a progressive adaptive strategy to a changing international environment. Financial and monetary instability called for a more intensive regulation reallocating responsibilities and powers from the private sector to the public sphere. Accordingly, financial elites changed their contours and boundaries. As the demand for technical competences and bargaining abilities rose, Italian governments and central monetary authorities tended to co-opt competent representatives from the private sector onto special committees at home, at international conferences, or in bilateral negotiations. A telling tale of such processes is represented by changes within the composition of the Italian delegations at major international economic and financial conferences from the Brussels Conference in 1920 to the London Economic and Monetary Conference in 1933.

scholarly journals The Effect of FOMC Votes on Financial Markets

2019 ◽  
Vol 101 (5) ◽  
pp. 921-932
Author(s):  
Carlos Madeira ◽  
João Madeira
Keyword(s):  
Monetary Policy ◽  
Financial Crisis ◽  
Financial Markets ◽  
Interest Rates ◽  
Stock Prices ◽  
Open Market ◽  
Federal Open Market Committee ◽  
2008 Financial Crisis ◽  
Treasury Securities ◽  
Stock Market Reaction

This paper shows that since votes of members of the Federal Open Market Committee have been included in press statements, stock prices increase after the announcement when votes are unanimous but fall when dissent (which typically is due to preference for higher interest rates) occurs. This pattern started prior to the 2007–2008 financial crisis. The differences in stock market reaction between unanimity and dissent remain, even controlling for the stance of monetary policy and consecutive dissent. Statement semantics also do not seem to explain the documented effect. We find no differences between unanimity and dissent with respect to impact on market risk and Treasury securities.

scholarly journals Measuring the Effect of the Zero Lower Bound on Medium- and Longer-Term Interest Rates

2014 ◽  
Vol 104 (10) ◽  
pp. 3154-3185 ◽  
Author(s):  
Eric T. Swanson ◽  
John C. Williams
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Lower Bound ◽  
Private Sector ◽  
Interest Rates ◽  
Zero Lower Bound ◽  
Short Term ◽  
Macroeconomic Models ◽  
Monetary And Fiscal Policy ◽  
Effectiveness Of Monetary Policy

According to standard macroeconomic models, the zero lower bound greatly reduces the effectiveness of monetary policy and increases the efficacy of fiscal policy. However, private-sector decisions depend on the entire path of expected future short-term interest rates, not just the current short-term rate. Put differently, longer-term yields matter. We show how to measure the zero bound's effects on yields of any maturity. Indeed, 1- and 2-year Treasury yields were surprisingly unconstrained throughout 2008 to 2010, suggesting that monetary and fiscal policy were about as effective as usual during this period. Only beginning in late 2011 did these yields become more constrained. (JEL E43, E52, E62)

scholarly journals Analysis of Housing Market Dynamics Considering the Structural Characteristics of Mortgage Interest

2021 ◽  
Vol 13 (19) ◽  
pp. 10523
Author(s):  
Insoo Baek ◽  
Sanghyo Lee ◽  
Joosung Lee ◽  
Jaejun Kim
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Housing Market ◽  
Structural Characteristics ◽  
Housing Demand ◽  
Market Mechanism ◽  
Policy Implications ◽  
Mortgage Loan ◽  
Market Mechanisms ◽  
The Government

Mortgage loan interest rates consists of base interest and spread. In general, the base interest is adjusted by the government for the sustainability of the housing market. On the other hand, spread is determined by market mechanisms. Accordingly, the change pattern of base interest and spread may appear differently depending on the market situation. In the end, the effect of the government’s market intervention through interest rate policy may be different than expected. In this respect, the purpose of this paper is to analyze the effects of base interest and spread of the mortgage loan interest rate on the housing market and to derive important policy implications for the sustainability of the housing market. As a result of this study, the ineffectiveness of the government’s interest rate policies on the stability of the housing market was confirmed. The market mechanisms had more significant effects on the sustainability of the housing market than artificial political intervention. Further, housing supply policies based on the market mechanism could be more effective than housing demand policies based on interest-rate adjustments.

scholarly journals The Impact of Financial Deepening on Economic Growth in Nigeria (1981-2018)

2020 ◽  
Vol 17 ◽  
Keyword(s):  
Economic Growth ◽  
Private Sector ◽  
Interest Rates ◽  
Money Supply ◽  
Commercial Banks ◽  
Financial Sector ◽  
Financial Deepening ◽  
Growth Data ◽  
Main Research ◽  
The Impact

Different academics and experts have acknowledged that developing the financial sector positively impacts economic growth by increasing productivity, progress and national investment. Expanding the financial sector allows financial intermediaries to carry out functionalities of deploying, aggregating and directing a country’s savings into an investment which contributes to domestic progression. This research explores the effect of financial deepening on Nigeria’s growth for 38 years covering 1981- 2018. The main research goals were to investigate the linkages among time and savings deposit of commercial banks, money supply and credit to the private sector on the economy’s growth. Data was obtained from CBN Bulletin different issues and analyzed using Autoregressive Distributed Lag. From the result of analysis, we found out that long run relationship existed but no regressor was found to be significant. Credit to the private sector to GDP was inversely related to GDP growth whereas money supply to GDP had positive relations with economic growth rate, time and savings deposits in commercial banks negatively affected national growth. Policies favoring credit lending to the private sector should be encouraged by stakeholders in the economy, for instance, higher savings interest rates would encourage more savings. More importantly, policies should be enacted to make sure that savings are transmitted into productive investments that can yield financial deepness

scholarly journals ANALYSIS OF CURRENT STATE AND PROSPECTS OF DEVELOPMENT OF THE BANKING CONSUMER CREDITING IN UKRAINE

2017 ◽  
pp. 156-163
Author(s):  
Yaroslav Chaikovskyi
Keyword(s):  
Interest Rates ◽  
Consumer Credit ◽  
Bank Lending ◽  
Credit Policy ◽  
Rapid Reduction ◽  
Current State ◽  
Banking Institutions ◽  
Analytical Assessment ◽  
Points Of View ◽  
High Level

The article discusses different points of view and the essence of the economic category of «consumer credit». Analytical assessment of the current state and bank lending to individuals in Ukraine is carried out. Analysis of development of bank crediting of individuals has revealed that from 2005 to 2016 and for two months in 2017 consumer crediting in Ukraine has been developing unevenly. A comparative analysis of the dynamics of loans granted by banking institutions to residents, juridical and physical persons is carried out. The current state of bank crediting of individuals is characterized by a gradual decrease of volumes and a rapid reduction in the proportion in total bank lending. The main problems regarding the granting credits to individuals by banking institutions are revealed. High level of interest rates on loans to individuals, reduction of real incomes and risky credit policy of banks are the main obstacles of development of the bank consumer crediting. Recommendations for ensuring and increase of the efficiency of bank consumer crediting have been developed.

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