Banks and Brokers, 2007–20

2020 ◽  
pp. 390-425
Author(s):  
Ranald C. Michie
Keyword(s):  
Global Financial Crisis ◽  
Financial System ◽  
Central Banks ◽  
Financial Systems ◽  
Size Scale ◽  
Monetary Stability ◽  
Time Zones ◽  
Degree Of Control ◽  
National Boundaries ◽  
The Global Financial Crisis

Before the crisis the megabanks had established themselves at the centre of the world’s financial system, transcending national boundaries and time zones as they extended their operations around the globe. These banks also spread themselves over a growing diversity of activities that destroyed the compartmentalized structures of the past.Such was their size, scale, and spread, and the structure of the business they conducted, that these banks were regarded as too-big-to-fail not only by those who worked for them, used them, and traded with them but also by the regulators responsible for supervising financial systems and the central banks tasked with preserving financial and monetary stability. It was this world that appeared to evaporate with the Global Financial Crisis. That turned out not to be the case. Though curbs were placed on the megabanks they turned out to be indispensible in an age of globalization and the only available mechanism through which regulators and central banks could exercise a degree of control over the financial system. What remained after the crisis was a small number of even more powerful US-based megabanks along with an equivalent group of US-based megafunds.

Afterword

2020 ◽  
pp. 610-628
Author(s):  
Ranald C. Michie
Keyword(s):  
Global Financial Crisis ◽  
Supply And Demand ◽  
Banking System ◽  
Financial System ◽  
Central Banks ◽  
Global Banking ◽  
The Us ◽  
Direct Government ◽  
The Global Financial Crisis ◽  
Global Financial System

The shock to the global financial system in 2020, caused by the coronavirus, provides is a test for the measures taken since the Global Financial Crisis of 2008. The coronavirus has caused a shock to the global economic system, disrupting both supply and demand, and this demands more direct government intervention than central banks are able to provide. Whereas the 2008 crisis was one centred on the global banking system that of 2020 was an event akin to a war, natural disaster, or a political revolution. In turn that had implications for the global financial system as it contained the potential to destabilize banks by threatening the solvency of those to whom they had made loans and extended credit. To forestall such an event central banks are called upon to act as lenders of last resort, particularly the Federal Reserve, as it was the only one capable of supplying the US$s on which all banks relied when making and receiving payments, and borrowing and lending, among themselves. From the outset that response appears to have learned lessons from the mistakes of the 2008 crisis, in terms of speed, scale, and co-ordination, while the global banking system is far more resilient.

scholarly journals Input-to-state Stability in the Meaning of Switching for Delayed Feedback Switched Stochastic Financial System

2020 ◽  
Author(s):  
Ruofeng Rao
Keyword(s):  
Global Financial Crisis ◽  
Semigroup Theory ◽  
Financial System ◽  
Stability Criteria ◽  
Financial Systems ◽  
Switching Law ◽  
Lyapunov Function Method ◽  
Globally Asymptotical Stability ◽  
The Stability ◽  
The Global Financial Crisis

Financial system is essentially chaotic and unstable if there is not any external inputs. By means of Lyapunov function method, design of switching law, novel fuzzy assumption, $L^p$ estimation technique and Laplace semigroup theory, the author presents the boundedness and LMI-based (globally) asymptotical input-to-state stability criteria of financial systems. Particularly, the globally asymptotical stability in the meaning of switching implies that when the time $t$ is big enough, the dynamic of any subsystem must approach its unique equilibrium point. Besides, the global financial crisis often erupts periodically, which illuminates that the global stability in the classical sense is actually meaningless. So the stability in the meaning of switching proposed in this paper is suitable and appropriate. Numerical examples illuminate the effectiveness of the obtained results.

Central Banks’ New Macroprudential Consensus

2019 ◽  
pp. 481-502
Author(s):  
Michael W. Taylor ◽  
Douglas W. Arner ◽  
Evan C. Gibson
Keyword(s):  
Financial Crisis ◽  
Central Bank ◽  
Financial Stability ◽  
Price Level ◽  
Global Financial Crisis ◽  
Central Banks ◽  
System Stability ◽  
Policy Objective ◽  
Monetary Stability ◽  
The Global Financial Crisis

The traditional central bank consensus is designed around two mandates: monetary and financial stability. Following the Great Stagflation of the 1970s, central banks’ policy objective became biased toward maintaining a low and stable rate of inflation or monetary stability. This was based on the presumption that a stable price level would achieve both monetary and financial system stability. The deemphasis on financial stability remained until the global financial crisis, when the prevailing consensus was exposed for being thoroughly inadequate. A new consensus has emerged that broadens central banks’ financial stability mandate to include macroprudential supervision. This chapter analyzes the new central bank consensus, how this has resulted in institutional redesign, and the effectiveness of discharging postcrisis financial and monetary stability mandates.

Conclusion

2020 ◽  
pp. 601-609
Author(s):  
Ranald C. Michie
Keyword(s):  
Financial Crisis ◽  
Interest Rates ◽  
Global Financial Crisis ◽  
Low Cost ◽  
Financial System ◽  
Central Banks ◽  
Financial Instruments ◽  
The Stability ◽  
The Global Financial Crisis

The Global Financial Crisis that took place in 2007–9 was the product of both long-term trends and a specific set of circumstances. In particular, the thirty years preceding that crisis had witnessed a refashioning of the global financial system, which was, itself, a reaction to that which had emerged after the Second World War. Over those thirty years competitive markets gradually replaced governments and central banks in determining the volume and direction of international financial flows. The interaction within and between economies took place on a daily basis through the markets for short-term credit, long-term loans, foreign exchange, securities, and a growing array of ever more complex financial instruments that allowed risks to be hedged whether in terms of interest rates, currencies, exposure to counterparties, or other variables. This was a period of great innovation as new financial instruments were created in order to match the needs of lenders for high returns, certainty, and stability and those of borrowers for low cost finance and flexibility in terms of the amount, currency, and timing of repayment. Nevertheless, governments remained heavily involved through the role played by regulators and central banks, generating confidence in the stability of the new financial system. That confidence was destroyed by the Global Financial Crisis of 2008 and had not been rebuilt by 2020.

Global Financial Crisis

2020 ◽  
pp. 328-389
Author(s):  
Ranald C. Michie
Keyword(s):  
Financial Crisis ◽  
Global Financial Crisis ◽  
Central Banks ◽  
Regulatory Agencies ◽  
Financial Systems ◽  
The One ◽  
The Global Financial Crisis ◽  
High Degree ◽  
Global Financial System ◽  
Systemically Important Banks

Many have suggested that the Global Financial Crisis was an accident waiting to happen, being the result of trends dating from the 1970s. However, these same trends provided the global financial system with a high degree of resilience. The depth and breadth of global financial markets, the size and scale of the megabanks, and the use of derivatives, all provided a means of coping with the instabilities inherent in market economies. In addition, central banks, acting collectively, had perfected rules of behaviour that were applied to systemically important banks and so reduced the level of risk that they were exposed to. Securitization and the operation of the originate-and-distribute model of banking had removed the threat of a liquidity crisis. Regulatory agencies were also in place that supervised financial systems, and so were in a position to identify and deal with any signs of impending difficulty. This removed the threat of a solvency crisis for any systemically important institution. Under these circumstances a crisis of the magnitude of the one that took place in 2008 was considered impossible. But the impossible happened. However, the crisis was a rolling affair, beginning in 2007, creating ample opportunity for intervention to prevent it having the consequences it did.

scholarly journals Central Bank Currency Swaps and Their Implications to the International Financial Reform

2016 ◽  
Vol 02 (01) ◽  
pp. 135-152
Author(s):  
Xu Mingqi
Keyword(s):  
Developing Countries ◽  
Financial Crisis ◽  
Ad Hoc ◽  
Global Financial Crisis ◽  
Financial System ◽  
Central Banks ◽  
Financial Reform ◽  
International Financial System ◽  
The Global Financial Crisis ◽  
The U.S

Since the outbreak of the global financial crisis, a series of currency swap arrangements among central banks have been reached, and many short-term ad hoc mechanisms have been later transformed into permanent institutions, with the decentralized role of the USD and increasing significance of other currencies. It is important to note, however, that currency swaps by Western countries are generally not intended to reform but to maintain stability of the U.S.-dominated international financial system and the USD hegemony. The comprehensive currency swap arrangements made among six major developed economies since the financial crisis exemplify their resistance to the international financial reform. Meanwhile, developing countries have also laid out their own blueprints, highlighted by China’s currency swap arrangements with 33 foreign central banks and the accelerating RMB internationalization. The currency swaps promoted by the People’s Bank of China (PBOC) between the RMB and other currencies would inject supplementary liquidity to a turbulent market and offset impact from the selective currency swaps of the U.S. Federal Reserve, thus proving beneficial to developing countries. While such currency swaps are far from replacing the IMF’s role in stabilizing the global financial market, they are posing both challenges and new opportunities to the reform of the international financial system.

INFLATION TARGETING: IT'S NOT BROKE, IT DOESN'T NEED FIXING, BUT CAN IT SURVIVE?

2010 ◽  
Vol 01 (01) ◽  
pp. 59-80
Author(s):  
PIERRE L. SIKLOS
Keyword(s):  
Monetary Policy ◽  
Inflation Targeting ◽  
Global Financial Crisis ◽  
Emerging Market ◽  
Asset Price ◽  
Central Banks ◽  
Economic Downturn ◽  
Price Increases ◽  
The Global Financial Crisis ◽  
Nominal Anchor

Until the end of 2005 there were few outward signs that the inflation targeting (IT) monetary policy strategy was deemed fragile or that the likelihood of abandoning it was high. In light of the severe economic downturn and the global financial crisis that has afflicted most economies around the world since at least 2008, it is worth reconsidering the question of the fragility of the inflation targeting regime. This paper reprises the approach followed in Siklos (2008) but adds important new twists. For example, the present study asks whether the continued survival of IT is due to the fact that some of the central banks in question did take account of changes in financial stress. The answer is no. Indeed, many central banks are seen as enablers of rapid asset price increases. The lesson, however, is not that inflation targeting needs to be repaired. Instead, refinements should be considered to the existing inflation targeting strategy which has evolved considerably since it was first introduced in New Zealand 20 years ago. Most notably, there should be continued emphasis on inflation as the primary nominal anchor of monetary policy, especially in emerging market economies (EME), even if additional duties are assigned to central banks in response to recent events.

scholarly journals Confidence in future monetary policy as a way to overcome the liquidity trap

2019 ◽  
Vol 5 (2) ◽  
pp. 117-135
Author(s):  
Olga Kuznetsova ◽  
Sergey Merzlyakov ◽  
Sergey Pekarski
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Large Scale ◽  
Global Financial Crisis ◽  
Time Consistency ◽  
Central Banks ◽  
Time Inconsistency ◽  
Liquidity Trap ◽  
Developed Economies ◽  
The Global Financial Crisis

The global financial crisis of 2007–2009 has changed the landscape for monetary policy. Many central banks in developed economies had to employ various unconventional policy tools to overcome a liquidity trap. These included large-scale asset purchase programs, forward guidance and negative interest rate policies. While recently, some central banks were able to return to conventional monetary policy, for many countries the effectiveness of unconventional policies remains an issue. In this paper we assess diverse practices of unconventional monetary policy with a particular focus on expectations and time consistency. The principal aspect of successful policy in terms of overcoming a liquidity trap is the confidence that interest rates will remain low for a prolonged period. However, forming such expectations faces the problem of time inconsistency of optimal policy. We discuss some directions to solve this problem.

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