• Posted on January 10, 2024
• Amita

FSR Blog Sample

Week 2:Consider of the regulation in central bank in the regulatory structure

 

Introduction

To the extent that it falls within its regulatory mandate, it is the responsibility of the central bank to make decisions on a variety of issues, including whether or not new financial institutions should be permitted to operate in the country. In the vast majority of countries around the world, it is the courts, rather than the central banks, that are in charge of issuing corporate charters. State governments, as well as the federal government, have the authority to grant bank charters in the United States, as do the federal government and individual states, as well as the federal government and individual states. It is unlawful for the Federal Reserve to issue a banking charter on its own initiative, except to the extent permitted under the Federal Reserve Act (Federal Reserve Act) (Prasad,2021).

Discussion

When it comes to giving charters to firms and other organisations, central banks play an important role in the process. They also assist the courts in the administration of their rulings. Central banks have the power to indirectly influence bank entry in a positive way as a result of their control over interest rates and monetary policy. This allows them to maintain high levels of competitiveness, which is advantageous to both clients and financial institutions.

 

The enforcement of anti-discrimination legislation is also necessary to protect the availability of money and credit from the goals of communal and racial organisations. Globally, central banks are not permitted to restrict entire populations from participating in the financial system as a result of the rules adopted by their respective central banks, according to international law (Arner,2021). A lawsuit has been filed on behalf of the Federal Reserve, accusing the institution of discriminating against specific neighbourhoods in the United States by “redlining” their loans, as has been done in other parts of the world, according to the lawsuit.

Summary

Following the financial crisis, several banks in some places have refused to lend money to people who have been negatively affected by the economic slump, resulting in a scarcity of rental homes available for rent in those areas. During this time period, a substantial number of Hispanic and African American people were residing in a variety of neighbourhoods, and it was determined that this practise was discriminatory against them, resulting in the decision.

 

 

 

Week 3: A judgement based Approach in regulation

 

Introduction

During the time period covered by the principles-based regulatory framework in force at the time, the supervisory method was dubbed “risk-based.” As a result, the Financial Services Authority (FSA) has focused its regulatory efforts on monitoring and mitigating the most significant commercial risks, rather than on other issues. A company whose risks have been assessed to be higher will be subjected to heightened supervision and more strict legal requirements as a result.

Discussion

Both the PRA and the FCA are bolstering the “stress testing” carried out by the Financial Services Authority. Companies are now expected to take into account unfavourable changes that may have an impact on their operations in order to remain competitive. In order to establish whether or not they have the resources to continue operating their business in such a situation, they must first evaluate their reaction alternatives (Lee,2021). The need for businesses to do “reverse stress testing,” as it is commonly known to in the industry, is one example of this. A firm begins with an analysis of the different factors that could theoretically cause it to fail, and then works backwards (that is, in reverse) to determine the strategies and protections that can be implemented to reduce future risk. It is necessary for the financial planning process to take into account a wide range of contingent but foreseeable occurrences, such as fraud and system failures, in addition to unfavourable reputational developments and natural disasters, as well as detrimental changes in the company’s principal activity (such as a big recession limiting demand for products) (Arner,2020).

Each level of supervision, beginning with licencing and progressing through punishment and crisis management, is evaluated on its ability to use judgement or discretion in a given situation. John Maynard Keynes noted in 1942 that ‘Perhaps the most difficult problem in the International Monetary Fund’s views is how much should be decided by rule and how much should be left to discretion,’ which he considered to be the most difficult subject in the IMF’s ideas.

Summary

If you look at it from the perspective of administrative law or monetary policy, this is an age-old question. In addition, defining what constitutes judgment-based supervision in the first place might be difficult for authorities to accomplish. Regulation in response to a crisis (i.e., retroactive regulation) has been a constant throughout the history of finance, regardless of the fact that legislation can be proactive in its approach to solving problems.

 

 

References

Arner, D.W., Auer, R. and Frost, J., 2020. Stablecoins: risks, potential and regulation.

Goodhart, C.A., Kashyap, A.K., Tsomocos, D.P. and Vardoulakis, A.P., 2018. An integrated framework for analyzing multiple financial regulations. 29th issue (January 2013) of the International Journal of Central Banking.

Lee, Y., Son, B., Park, S., Lee, J. and Jang, H., 2021. A survey on security and privacy in blockchain-based central bank digital currencies. Journal of Internet Services and Information Security (JISIS), 11(3), pp.16-29.

Prasad, E., 2018. Central banking in a digital age: Stock-taking and preliminary thoughts. Hutchins Center on Fiscal & Monetary Policy at Brookings.

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