Nobody downloaded yet

The Financial Crisis And The Lender Of Last Resort. What Is The Role Of The State And Central Banks - Essay Example

Comments (0) Cite this document
The financial crisis and the lender of last resort. What is the role of the state and central banks? Introduction The world economy has witnessed a series of crisis especially in global financial markets. Financial crisis and economic downturns are found most of the time to be positively related to the activities of the central bank…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER98.6% of users find it useful
The Financial Crisis And The Lender Of Last Resort. What Is The Role Of The State And Central Banks
Read TextPreview

Extract of sample "The Financial Crisis And The Lender Of Last Resort. What Is The Role Of The State And Central Banks"

Download file to see previous pages The state every time after undergoing a crisis had to interfere in the monetary policies adopted by central banks and frame suitable policies for recovery. This has continued to be a regular phenomenon. Even for the current scenario the state as well as central banks have very carefully made certain changes in existing laws and imposed certain new legal restrictions to deal with the economic conditions post crisis. Appropriate monetary and fiscal policies have become a necessity right from the emergence of crisis. They are framed as per the needs of the respective countries. Governmental policies play an active part in setting up an effective regulatory framework that control all segments of financial services2. The concepts of economic Law and monetary law at the international levels have been merged together for establishing rules for regulating financial services globally. With this at the backdrop the paper intends to give a detailed description on the role of central banks and state during financial crisis and how reforms undertaken have brought about a change in the situations post crisis. World economy has suffered from a series of crisis dating back to the days of World War II which left the economy into a miserable state. The great depression of 1929 proceeding World War II deserves mention in the list of economic disasters. The financial crisis at the end of 1998 in the West hampered the normal functioning of many liberalized markets and private sectors3. The most recent has been the global financial meltdown in 2008-09 which led to vast unemployment and demand cuts. It was found that some features of monetary policies could be blamed for such a crisis. The defects of the prevailing macroeconomic framework had been realized immediately after the crisis. It needed a reconstruction for recovering from crisis. Monetary policies under pre crisis situation State had given central banks much freedom so as to frame monetary policies for the country. It was believed that the central banks should be allowed to frame monetary policies independently so as to maintain a stable price system in the economy and minimize the chances for high inflation. For giving this independence to the central banks modifications were made in the policies during 1990. But such a freedom proved costly to the state as it was utilized elsewhere like short term demand management. Besides the ‘flexible inflation targeting’ policy adopted by central banking system ignored the problem of instability in inflation. Established with the purpose of reducing output volatility, the inflation policy initiated instability by limiting information about inflation output gap. Errors were detected in gap measurements and this diverted the economy from the right track. The issue of liquidity and money were also ignored and this favored the climate for economic downturns. The inefficiency of the adopted theoretical models was revealed during crisis.4 The models did not have practical implications. While looking upon the stability of one period it did not consider important factors that also contributed towards stabilization. It neglected a wider picture of the assumed period. Fitting models only on the basis of empirical data could not be considered enough. It was equally necessary to look upon the causes of instability and capture those factors in the model5. The 2008-09 financial crises has taught a lesson to many risk loving investors who were lured by ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
(“The Financial Crisis And The Lender Of Last Resort. What Is The Role Essay”, n.d.)
Retrieved from
(The Financial Crisis And The Lender Of Last Resort. What Is The Role Essay)
“The Financial Crisis And The Lender Of Last Resort. What Is The Role Essay”, n.d.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF The Financial Crisis And The Lender Of Last Resort. What Is The Role Of The State And Central Banks

Central Banks & Monetary Policy

... that is related to the interest of the public, considering state agencies’ functions and coordinating them. It is to the degree that the interest of the public could be provided by the addition of functions not assigned to the better (Callaghan, 2009). Hence, most central banks started to assume roles for financial sector’s development; payment system oversight and money operation, foreign exchange, capital market and debt oversight. From the present objective, such an interest objective exposes itself to understanding and provides directions on what is to be done when views or functions as to nation’s interest. It is only in the recent past that attention has been awarded to objectives identification for function of individual... ?...
13 Pages(3250 words)Research Paper

Central banks and monetary policy

...of the most significant circumstances for successful growth is the growth of various sectors including, the financial sector, which cannot deviate enduringly from the growth of price added of the financial system as a whole. Financial Stability: Financial stability illustrates the situation where the financial intermediation method functions easily, and where there is assurance in the operation of important financial organizations and markets within the financial system. Central banks have traditionally played an important role in the management of economic crises,...
13 Pages(3250 words)Research Paper

Central Banks & other International banks

..., the effects of the crisis have continued to dwindle over time. 5. What appears to be the major constraint that the central banks used to determine the limits of the monetary injections into the economy? The US assumed a most proactive role in tackling the financial crisis. The Federal Reserve has mainly applied interest rate changes to stop the financial crisis from having greater effects on the economy – more than any other central bank. The bank’s interest rate has been reduced from about 5.3% in September, 2007 to about 1.4% over the...
3 Pages(750 words)Assignment

Central Banks Propel Asia Markets

...Task Central Banks Propel Asia Markets Summary The article, “Central Banks Propel Asia Markets” by Turner describes the injection of liquidity into Asian economies in a bid to reduce dollar costs and ease monetary conditions. The result of the injection of liquidity into several Asian economies was the rise in stock values in both the Asian countries and their counterparts in Europe and the United States. This initiative was accomplished through an agreement by the US Federal Reserve, UK central banks, the Euro zone, Canada and other countries to ease the cost of financing. This was done by softening the existing swap...
6 Pages(1500 words)Essay

Function of Central Banks as Lender of Last Resort (LOLR)

...?Function of Central Banks as Lender of Last Resort (LOLR) Financial stability policies in the financial sectors are considered to include supervision, regulation and crisis management. All this functions are performed by the central banks which crucially depend on the central bank’s function of lender of last resort (LOLR). LOLR is a crisis management strategy financed by the central bank’s money. One case that relates to central banksrole as lender of last resort is in the manner that the recent financial crisis was dealt with by many nations. The recent financial crisis started in mid 2007 and ended in 2008. The crisis saw the fall of stock markets across the world and the collapse of massive financial institutions from some... . In this...
5 Pages(1250 words)Essay

The last financial crisis 2007-2009 major economies around the globe (Read, 2009). This resulted in government interventions to bail out banks and other financial institutions as well as big companies in order to protect the economy from collapsing. Some of the results of the financial crisis across the globe included massive prolonged unemployment, high interest rates, and housing crisis among others. The crisis also led to a reduction in global economic activities between 2007 and 2012 and played a major role in the debt Crisis in the European countries (Fried, 2012). The global financial crisis has...
12 Pages(3000 words)Research Paper

Role of Central Banks

...Role of Central Banks In an economy with a central bank monopoly of currency issue, the central bank controls the monetary base through its ability to increase the quantity of currency in the economy. A principal objective of any central bank is to safeguard the value of the currency in terms of what it will purchase. Rising prices, or inflation, reduces the value of money. Monetary policy is directed to achieving this objective and providing a framework for non-inflationary economic growth. As in most other developed countries, monetary policy operates in the UK mainly through...
11 Pages(2750 words)Essay

Role of commercial banks in causing the financial crisis

...the metamorphosis to huge financial losses resulting from market risk. As mortgage borrowers defaulted, the securitized mortgage market froze up and the financial institutions were left to hold these topic assets at deeply reduced market rates and values which hard hit the investment banks. There was no other choice that the United States had apart from having to go through the crisis that was in the banking sector that was derived from the savings and the loans that were being given at that particular time in 1984 which may be considered to be minute in stature if it is looked at in comparison with the one that took place in 1930s and...
5 Pages(1250 words)Term Paper

Should central banks be independent to the other. In this paper the main functions and roles of the central banks will be analyzed and an evaluation performed o whether the central banks should be made independent (Touffut 52). Functions towards the economy The key functions of the central bank revolve around the fact that the central bank is an agency that is expected to perform the conducts of monetary policy and provide the means through which it can be settled. In the past, they functioned as the government’s bankers, the monopoly of issuing notes, the banker’s bank, the last...
4 Pages(1000 words)Essay

Central banks

...Insurance Corporation in the United States. Depository institutions are also regulated by the central bank in a number of ways so as to manage the money supply in the economy. They are also obligated by the central bank to conserve the reserve prerequisite as specified. Functions of the Central Bank The central bank generally executes the following functions: banker, agent and advisor to the government; bank of note issue; bankers’ bank; lender of last resort and controller of...
6 Pages(1500 words)Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic The Financial Crisis And The Lender Of Last Resort. What Is The Role Of The State And Central Banks for FREE!

Contact Us