8 Mart 2009 Pazar

Central Banking

"Money is much too serious a matter to be left to central bankers", Milton Friedman (from Money Mischief).

The public's trust and confidence for the Central Bank pursuit of its goal, can only be achieved if and only if the central bank is an independent and so bounded by the rule of law. With the rule of law the central bank an independence gain public trust in its pursuit of price stability- otherwise public trust and confidence in the central bank's pursuit of price stability objective is a political nonsense !

Irrespective of the complexities of economic change, the primary goal of the Central Bank is to find policies that contribute to a noninflationary environment and hence to economic growth.
The primary objective of the central bank's monetary policy should be a long-run price stability- irrespective of the complexities of economic change, the primary goal of the central bank is to find policies that contribute to a noninflationary environment and so to economic growth.

With legally or constitutionally enforceable commitment to long-run price stability, the sole objective of monetary policy of a nation monetary system is to maintain stable value of money- a good kind of money policies by monetary law, the rule of law of the monetary policy.

Nation's monetary history shows that monetary stability is an important determinant of economic stability. Safeguarding or maintaining the long-run purchasing power of money is essential for the future of private property and a free society.

In contrast to the government monetary policy under the rule of law, Government discretionary policies (such as, wage-price controls) undermines the rule of law by creating inflation that erodes value of money and distorts the relative prices, making production, consumption and investment decisions of individuals more uncertain.

Constitution need not dictate the exact rule for the Central Bank (CB) to follow in it pursuits of long-run price stability, but Constitution should hold the CB accountable for achieving that goal- and not require the CB to respond to supply shocks that would lead to one-time increase or decrease in the price level.

The puplic's trust and confidence in the future purchasing power of the money (such as Yen, dollar, Euro, TL or call it anything else) can be permanently increased by a legal mandate, directing the Central Bank to adopt a monetary policy rule to achieve long-run price stability that essential for the future of private property and a free society.

Secondary Objective of The Central Bank: Effective Banking Supervision

The need to improve the strength of financial systems has attracted growing international concern. Weaknesses in the banking system of a country, whether developing or developed, can threaten financial stability both within that country and internationally.

An effective system of banking supervision is based on a number of external elements, or preconditions. These preconditions or external elements include: sound and sustainable macroeconomic policies; a well developed public infrastructure; effective market discipline; and
mechanisms for providing an appropriate level of systemic protection (or public safety net).

Effective supervision of banking organisations is an essential component of a strong economic environment in which the banking system plays a central role in making payments and mobilising and distributing savings. The task of supervision is therefore to ensure that banks operate in a safe and sound manner and that they hold capital and reserves sufficient to support the risks that arise in their business.

Strong and effective banking supervision provides a public good that may not be fully provided in the marketplace. Strong and effective banking supervision along with effective macroeconomic policy is critical to financial stability in any country. While the cost of banking supervision is indeed high, the cost of poor supervision has proved to be even higher.

CAMEL BANKING:

CAMEL in banking jargon now takes on the following form: Capital (C), Assets (A), Management (M), Earnings (E) and Liquidity(L)- CAMEL BANKING.

"The purely monetary connection between ruler and subject demonstrated the absence of any other relationship. The continuous depreciation of currency by rulers was an appropriate technique within such a relationship; for these methods, which give all the benefits to one side and the entire loss to the other. This has been traced to the fiscal policy of rulers who use the royal prerogative of coinage as a means of taxation without concern for the consequences of devaluation"-Georg Simmel (from Philosophy of Money).

Core Principles:

Core Principles for Effective Banking Supervision (Revised Version)
Core principles for effective banking supervision

Risk Management:

Economic capital modelling
Credit risk transfer
Fair value measurement and modelling
Management of liquidity risk in financial groups
Customer suitability in the retail sale of financial products and services

Liquidity Risk:

Principles for Sound Liquidity Risk Management and Supervision
Liquidity Risk: Management and Supervisory Challenges

Credit Risk and Securitisation:

Sound credit risk assessment and valuation for loans
Studies on the Validation of Internal Rating Systems (edition revised)
Best Practices for Credit Risk Disclosure
Principles for the Management of Credit Risk
Banks' Interactions with Highly Leveraged Institutions

Market Risk:

Amendment to the capital accord to incorporate market risks

Operational Risk:

The treatment of expected losses by banks using the AMA: the Basel II Framework
Advanced Measurement Approaches (AMA)
High-level principles for business continuity
Outsourcing in Financial Services
Risk management practices and regulatory capital
Management and supervision of cross-border electronic banking activities
Regulatory Treatment of Operational Risk

Basel II:

Basel II:International Convergence of Capital Measurement and Capital Standards: A Revised Framework - Comprehensive Version,Jun 2006
Basel II: International Convergence of Capital Measurement and Capital Standards: A Revised Framework , November 2005
An Explanatory Note on the Basel II IRB Risk Weight Functions
Guidelines for Computing Capital for Incremental Risk in the Trading Book, July 2008

Accounting and Auditing:

Compliance Principles
Sound credit risk assessment and valuation for loans
Fair value measurement and modelling
Audit of International Commercial Banks
Internal Audit in Banks and the Supervisor's Relationship with Auditors
Internal Audit in Banks
Framework for Internal Control Systems
Compliance and the Compliance Function in Banks

Banking Problems:

Bank Failures in Developed Economies
Liquidity Risk: Management and Supervisory Challenges
Supervisory Guidance on Dealing with Weak Banks
Supervisory Risk Assessment and Early Warning Systems
Supervisory Lessons to be Drawn From the Asian Crisis

Other Risks:

Principles for the management and supervision of interest rate risk
Compliance and the compliance function in banks
Enhancing corporate governance for banking organisations
Risk management principles for electronic banking
Parallel-owned banking structures
Shell banks and booking offices

Money Laundering and Terrorist Financing:

Due Diligence and Transparency
Customer Due Diligence for Banks
Consolidated KYC Risk Management

Central Bank Websites

Bank For International Settlements