Banking Crisis Research Paper Example | Topics and Well Written Essays - 3000 words

Banking Crisis - Research story ExampleIt is important to envision close co-ordination between the federal make and the Government, because financial policies should be antonymous to fiscal policies for achieving the countrys objective of sustainable and long term scotch growth. Evolution of underlying Banking The concept of Central Bank evolved in the second half of the 19th century. The banking institutions started with commercial purposes or regimen banks have transformed into central banks in most of the countries. Bank of England model has been adopted by several(prenominal) countries. Central banks became the lender of the last resort and started issuing notes. In the aftermath of the great depression the independence of the central bank has been curtailed in US. However, gold standard and laissez faire brought back independence to central bank to ensure monetary stability. TheUS Federal Reserve came into existence in 1913 through passing of The Federal Reserve Act. P anic in 1907 in banking circles gave rise to demands for reforms in banking sector and the National Monetary Commission was bunch up for this purpose. In mid 1990s in the wake of Russian default, the Fed lowered terse term interest ordinates to minimize the consequences of international financial conditions for the US economy and to ameliorate those conditions abroad. (Neely 35) umpteen world countries have agreed to adopt gold standard establishment in Bretton Woods conclave in 1914 which envisaged economic discipline among the nations. The role of central bank has increased substantially since stability of the up-to-dateness is an important factor in international finance. But, gold standard has failed due to devaluation of currencies by several countries to survey their national economies. The International Monetary Fund created in Bretton Woods in 1944 with the aim of preserving global monetary order introduced fixed exchange pass judgment of the currencies in relation to US Dollar or gold. This system has also failed due to various practical difficulties. Introduction of fluctuating exchange rates later mate with internal economic factors has increased the clout of central banks further and most of the countries started adopting fluctuating exchange rate system based on demand and supply. Paul Krugman stated Under the floating exchange rates we have had since 1973, exchange rates are determined by people buying and selling currencies in the foreign-exchange markets. The instability of floating rates has surprised and disappointed many economists and businessmen, who had not expected them to create so much uncertainty. From the simple bartering system, the monetary order has undergone changes over years in tune with the dynamic economic environment, technological developments and introduction of exotic derivative products in banking and financial services sector. In determining the value of money in modern economy, the fiscal measures of governm ents and the monetary control measures of the central bank play truly crucial roles. David Kupelian stated Despite the varied theories espoused by many establishment economists, it was none other than the Federal Reserve that caused the Great Depression and the horrific suffering, deprivation and dislocation America and the world experienced in its wake. At least, thats the clearly stated view of current Fed Chairman Ben Bernanke. The globalization phenomenon gaining impetus during the recent years