The Role Of Commercial Bank Operations Play Role On Monetary Policy

Since the Central Bank has the exclusive right to issue money in the economy, it can have extensive influence on the determination of interest rate in financial markets and in the economy as a whole, by adjusting the interest rate on short-term loans to financial institutions. Central Bank interest rates on these loans therefore have the most immediate impact on other short-term interest rates in the money market. By influencing interest rates, monetary policy then has an effect on the savings and expenditure decisions of individuals and corporate.

Following a cut in the discount rate (the rate at which the Federal Reserve lends to depository institutions) in August of that year, the Federal Open Market Committee began to ease monetary policy in September 2007, reducing the target for the federal funds rate by 50 basis points. As indications of economic weakness proliferated, the Committee continued to respond, bringing down its target for the federal funds rate by a cumulative 325 basis points by the spring of 2008. In historical comparison, this policy response stands out as exceptionally rapid and proactive. In taking these actions, we aimed both to cushion the direct effects of the financial turbulence on the economy and to reduce the virulence of the so-called adverse feedback loop, in which economic weakness and financial stress become mutually reinforcing. (Bernanke, “The Crisis and the Policy

The nation's monetary policy is set up by the Federal Reserve in order to support the aims and objectives of better employment, stable prices and a suitable and logical long term interest rates. One of the main challenges that are faced by policy makers is the stress among the aims and objectives that can occur in the short term and the fact that information regarding the economy becomes delayed and can be inaccurate (Monetary).

This article presents the fundamental reasons behind the Fed’s cautiousness in raising the interest rates, why it is more likely that interest rates will rise in December, and what some possible outcomes of rising interest rates could be.

In other words, Monetary policy can be looked at as a policy that is money-based that involves banks that manage liquidity to create the growth of money. This includes the use of checks, cash, and credit that are used in the money market as primary ways of investing money. The most important of these is credit would be one of the most important tools used in the market because it consist of loans that are written promises to pay money back. Within every policy that every nation has there will always be an objective at hand. The U.S. Federal Reserve, like many other banks around the world, has clearly stated targets for their goals. They look for a certain percent of people who want to work but cannot find a job and the find that the rate of

OCR is the main tool that Reserve Bank uses to conduct the monetary policy. It is important because whenever the Bank makes a decision to change the interest rate (cost of borrowing money), it will greatly affect to spending and investment. As a result, changes of OCR will lead to either higher prices (inflation) or lower prices (deflation). The RBNZ discuss fully the OCR every six weeks based on its economic and financial figures. The Banks does so frequently since it wants to make sure that the inflation is stable and this helps the entire economy operate smoothly and sustainably.

Given the power to formulate and implement monetary policies, the Bank of England (the Bank) declared its independence in 1997, taking charge of maintaining price stability and supporting the economic policy of Her Majesty 's Government, including its objectives for economic growth and employment. In the following sections, the paper will attempt to assess the Bank’ work and its policies that has been carried out during the economic downturn.

This research will, therefore, revisit the debate empirically, and bring up the question of mechanisms that makes competition contribute to bank stability as stated in recent studies. In spite of its significance for policy and regulation, the mechanism of transmission has remained an

From the past two decades these related researches have inspired people to reconsider the approaches central banks may adopt to deal with more volatile economy. As many of us have experienced boom-bust cycles not too long ago, since credit cycles or business cycles are nearly impossible to be totally eliminated, we expect monetary policy authority itself can at least reduce the severe aftermath. Better than simply relying on current methods, these innovative ideas may become the cornerstone to help central banks formulate more adaptive monetary policy, and before the ultimate consensus is reached, every debate is more than welcome.

Several authors including Bade and Park (1982), Alesina (1988,1989), and Grilli, Masciandaro and Tabellini (1991) found that more central banks are independent it would result in lower level of inflation. As Rogoff (1985) notes, dynamic inconsistency theories of inflation of the type developed in Kydland and Prescott (1977) and Barro and Gordon (1983) make it reasonable that more independent central banks will reduce the rate of inflation as delegating monetary policy to an agent whose preferences are more inflation averse than the societies preferences would serve as a commitment that allows sustaining a lower level of inflation. Insulating monetary policy from the political process helps enforce the low inflation equilibrium. Without

Hence the recommendation suggested that the effects of monetary policy transmitted through the financial indicators of the firms which are large enough to notice. However the financial advisors are the policy makers and it required vigilant eye at the financial figures of different companies, in order to reform and cater the monetary policies.

What is the relationship between central bank (CB) roles and banking crisis of a country? The CB can utilize its monetary instruments to bail out the insolvent banks and therefore keep the banking system still functioning (Khan, Khan and Dewan, 2013). However, the efficiency of utilizing this monetary instrument depends on the governance of the CB. The governance of CB consists of three essential elements, independency, accountability and transparency (Amtenbrink, 2004; Dincer and Eichengreen, 2014). The CB role on influencing the impact of crisis may not happen if there is a political influence from the government, such as the legislative and the executive. The legislative and executive bodies can intervene the

The way this works is that commercial banks assume that not all their customers would withdraw their deposits simultaneously therefore they lend out large deposits from their overall reserve with rates in which individuals or businesses would have to pay back. Central banks on the other hand aim to achieve their objectives using two distinct tools, each one being used to achieve one of the two objectives. For example, the monetary policy is used to maintain price stability. Another difference is that commercial banks do not have the authority or power to apply any policies in which they can affect the economy as a whole. Rather, they act and make their business decisions based on the policies given out by the central banks. The central bank is the only banking agency that is given authority by the government to alter interest rates and money supply which affects the way the economy would work.

A financial crisis always raised an essential question about the role of the central banks (CBs) in promoting banking stability. One of the important lessons of the crisis is that central banks will unavoidably be involved during the occurrence of a banking crisis since the CBs should be able to provide large amounts of fund to recover the banking system from the crisis.

Today, its vital role in commercial banking activities lie in the direct effect it has on total economic growth and business development. Every year the (CBN) central bank of Nigeria being the monetary authority that is solely responsible for the insurance of guidelines policies and the interpretation of such, comes up with economic measure roles and regulation under which the bank in the country operate. Such policies direct the use of funds from depositors, stockholders, and creditors in order to control the size of loan portfolio thereby determining the general circumstances under which it is appropriate to make an advance. The monetary policies also aim at aiding the banks to maintain a sound financial and banking system promote confidence in sustenance of reasonable banking services for public as well as ensuring a high standard of conduct and professionalism in banking industry. These rules and regulations are contained in monetary policy circular being issued by the central bank at the beginning of every year.