The Role of Central Banks in The Banking Situation

Central banks are a new invention. The President of the United States (Andrew Jackson) even abandoned a bank in the 19th century because he considered it insignificant. But things have changed since. Today, the central bank is the most important financial institution in many countries of the world.

Central banks are an unusual hybrid. Some functions are similar to similar companies. Other characteristics are specific to medium-sized banks. You have a legal monopoly on certain features.

Intermediary banks receive deposits from other banks and, in some cases, from foreign governments (such as the US Federal Reserve) that hold foreign currency and gold. Banks invest in the country's currencies while trying to create capital similar to the market value of its customers. The central bank still holds the national gold reserves. Most central banks attempted to pull gold as gold prices continued to fall. The bank has seen significant gains in this work, as gold is on the books for its historic advantages. Mid-sized banks (especially US banks) also participate in important international conferences. If they don't do it themselves, they have sequelae. The German Bundesbank benefited from Germany's role in the negotiations leading up to the Maastricht Treaty. It requires signatories to agree to strict terms of reference for a Euro Benefit project. The Bunbdesbank wants the country's economy to stabilize (lower debt, lower inflation) before it can integrate the euro. It is incredible in history that Germany itself does not qualify by these standards and cannot be accepted as a member of the club that helps set the rules.

However, all of these are secondary and important aspects of a bank's operations. The main role of a financial company today is to monitor and manage the interest rates in the market. Mid-sized banks do this by changing the interest rates they pay on the money they lend to banks through “discount counters”. Interest rates are expected to affect the level of interest rates in the industry. This link has not been clearly demonstrated by financial research. In addition, there is often a delay in the exchange of interest rates and market needs. This makes it difficult to assess interest rates. But central banks are using interest rates to improve the economy. High Interest Rates - low interest rates and low inflation. The gap is also considered to be true. A monthly movement of one percent of the points is enough to plunge the stock market along with the money market. In 1994, the long-term gap began to widen in the United States, from 3% to 6%. Money industry traders lose 1,000 billion (= 100 billion!) USD in a year. Even today, global forex traders are afraid of the Bundesbank's decision and remain with their eyes closed on the day of the announcement.

Interest is just a fad. Before that - and in the context of the Chicago School of Business - the central bank monitored and managed income. Put simply, they will sell the contracts to the public (thus suck water, money) - or buy them from the public (hence the injection of liquid). Otherwise, it will limit revenues and limit the government's borrowing capacity. Even before this craze, there was a strong belief in the effectiveness of financial management. This is especially true if the managed exchange is still valid and the results have not changed at all. The UK did not abolish exchange controls until 1979. The USD was pegged to the (gold) standard in 1971 (so not true free trade). The free flow of income is also new and its recent introduction reflects the general belief about the central bank. Today, exchange rates are considered “tradable” financial instruments and are rarely used by intermediary banks. However, the latter continue to interfere with the currency market in global and domestic markets, often inefficient and losing confidence in the process. After the embarrassing failure of the famous Louvre in 1985, the financial crisis was seen as a negative revival of the old.

Central banks are very heavy on the structure of the corporate banking system. They render an important service in the future. In many countries, bank payments go through a bank or clearing agency that is a link or advertisement with a central bank. All major foreign exchange transactions go through the bank, and in many countries they also need to be approved by the bank. The bank manages the banks, authorizes owners, supervises operations and carefully monitors income. Central banks offer loans as a last resort when there is a lack of money or capital.

So the continued demand from mid-sized banks around the world that they have reported in the financial markets seems puzzling at best. No central bank can say that there are no warning signs or that all data is inaccessible. A financial problem that can happen to have a long trace before it explodes. These signs must be verified by the central management company. Only gross negligence can explain the central bank's astonishment.

A sure sign is when a mortgage company will use a discount window. The other is when they offer higher interest rates than those offered by other financial institutions. There may be additional signs, and the intermediary bank should read them carefully.

This strong involvement is not limited to collecting and reviewing data. The bank, by definition of operation, affects other banks in the sector. By changing the rules (for example, changing the special rules), banks can go bankrupt or create an economic bubble that can explode. Without the easy and affordable money provided by the Bank of Japan in the 1980s, real estate and real estate would not have grown as much as it does today. At the time, it was the same bank (under a different governor) that supported lending and broke two business bubbles.

The same mistake was repeated in Israel in 1992-3 with the same result.

This is why, in my opinion, the central bank should not supervise the bank. When asked to supervise financial institutions, mid-sized banks should be criticized for their past performance, policies and past precautions. Let me explain these words.

In many countries around the world, financial management is a major division of the central bank. Periodically as an example of a bank. It then carefully examines the list and, if necessary, establishes rules of conduct and penalties. However, the role of central banks in determining the health, behavior and functioning of businesses is essential. He was very disappointed with the banks to supervise the banks. As I said, supervising the central bank means that the central bank should be able to criticize itself, to criticize its policies and practices, as well as the benefits of supervision. Central banks have to step into the role of a righteous saint, which is unlikely in reality.

One of the changes encourages accountability and balance, in which the central bank, its policies and procedures are criticized by corporate governance, as well as the corporate governance system. This is the Swiss way, and the Swiss banking system is well managed and supervised, unless Jewish currency deposited in Switzerland never reverts to its owner.

There are two types of funds in the medium: autonomous and semi-autonomous. Independent banks are politically and financially independent. Politicians are elected for a longer term than the main political party and have no political influence. Funding is not provided by the legislature or the board of directors. It's independent. It works like a business. This income was used up during the slim years of bankruptcy (losing money in the average bank is a difficult task). In Macedonia, for example, the annual income of the central bank is transferred to state capital and cannot be used by banks to improve their operations or work through training.

Important examples of intermediaries are the German Bundesbank and the US Federal Reserve.

The second type of central bank is a semi-autonomous central bank. It is a medium-sized financial institution that relies on a political hierarchy, in particular a financial one. This expectation can be achieved with funding from the Home Office or Parliament (which is administered by a large agency or affiliated group). Bank chiefs and city chiefs can be ousted by a political decision (by Congress, but that makes things a bit more difficult). This is the case of the National Bank of Macedonia, which should be the subject of a report to Parliament. The following banks act as financial advisers to the government. The Governor General of the British Monetary Fund has informed the Secretary of the Treasury of the interest rate requirement. However, it lacks the most important tools as these steps cannot be determined. Things are a little better for Israeli banks, where they can adjust interest rates and high-level exchange rates, but they are completely free.

The National Bank of Macedonia (NBM) has its own governing body in accordance with its governing body. A governor is elected for seven years and can only be removed if found guilty. However, he is in many political forces. Major governments have acknowledged having trusted central banks (while at the same time claiming to be totally independent).

NBM is young and most of its staff, however smart, are inexperienced. The money you pay may not appeal to the best artists. Funds raised by the bank can be used for these purposes and for consultants around the world (like Switzerland) who help the bank bridge the gap. But, as we said, the money was transferred to the budget. So the bank has to do with the charitable money received from USAID, the KNOW-HOW FUND, etc. Some of the services provided in this way are good and reasonable. Other information, in my opinion, is not appropriate to the local situation. Director: American and British standards. They are the worst watchdogs in the West (if you don't take the Japanese into account).

All of this forced the bank to solve a very difficult problem from the start. 1993 Bank of Finance, Financial Institutions and the Demolition of Stedilnicas (determined by the TAT event). Older and more experienced banks are in danger. Overall, NBM is fantastic. Priests in the security of the local currency, the dinar. This is an important role of the Central Bank. One or two panic attacks have occurred since the TAT incident. Then, a vote of confidence in the bank management system brought the value of the dinar-DM back to pre-crisis levels.

Central banks now face the most difficult task of uncovering the truth without fear and without prejudice. Banking operations must be thoroughly reviewed and instructions learned. The independence of banks should be considerably strengthened. Will the bank decide how to apply TAT and other underdeveloped Stedinicas?

It can be sold to the bank on an asset and liability basis. The Bank of England sold the Bearing Bank to ING Dutch Bank in 1995.

The bank can and must force the owners of Stedelnica not to increase their capital (use patrimonial assets if necessary). This was accomplished in the case of the 1991 BCCI scandal.

The Macedonian state decided to take responsibility for the failure and be able to reimburse the depositors. Israel (1983), the United States (7/7 1985) and 12 other countries have done so recently. Mid-sized banks can increase special needs and premiums.

However, these are all design and temporary solutions. Requires more radical action.

Complete restructuring of the banking system. Stedelnica should be deleted. The capital required to open a bank or a credit union must be at least DM 4 million (according to international standards and the size of the Macedonian market). Banks should be able to differentiate their roles (unless they have finances in the situation), establish partnerships with other financial service providers (like insurance companies) and open a strong organization.

And corporate governance should be separate from the central bank and should be in place to constantly criticize the bank and its policies, decisions and practices. .

No reason why Macedonia shouldn't be the financial center of the Balkans, and there are plenty of reasons why it should. But in the end, it all depends on the Macedonian himself.