Money and banking Essay Example | Topics and Well Written Essays - 500 words

Money and banking - Essay ExampleThe Central Bank can harmonize overnight credit on a regular basis through a standing liquid facility to banks and non-bank institutions in the financial system as part of its functions. This automatic provision of liquidity provides trust to all participants in the system that they will be able to cover provisional shortfalls in resoluteness balances. The Central Bank provides emergency lending assistance to various deposit-taking institutions that are deemed solvent and which require excess credit. This assistance is given to institutions which have a significant share of their liabilities as deposits and hold assets that are illiquid. In an economic crisis where the Governor of a countrys Central Bank believes that there is a pixilated stress on a financial system, he can allow the Bank to be a supplier of liquidity by purchasing securities issued by local and foreign entities. The Central Bank makes this remind to maintain financial stabilit y. (Sharma, 2003) The loans granted by the Central Bank are made on a secured basis. The collateral eligible to secure credit from the Bank refers to highly liquid assets such as political sympathies securities.New issues may impact on the lender of last (LLR) resort role. One issue is with celebrate to the expansion of the types of institutions eligible to become members of the financial system and able to participate directly in the payments system. A second issue is the international linkages created with the entry of foreign bank branches into the country. The third issue is the greater sensibility to the potential need by local institution for foreign currency liquidity changes in the supervisory framework. The fourth isssue is to craft a lender of last resort regime in a globalized banking purlieu as a way to promote financial stability. The lender of last resort (LLR) facility cannot be handled by the financial banks of the private