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

Money and banking - Essay ExampleThe Central brim can grant overnight recognize on a regular basis through a standing fluidness facility to banks and non-bank institutions in the pecuniary system as part of its functions. This automatic provision of liquidity provides assurance to all participants in the system that they will be able to cover provisional shortfalls in settlement balances. The Central Bank provides emergency contribute assistance to various deposit-taking institutions that argon deemed solvent and which require additional 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 severe stress on a financial system, he can allow the Bank to be a supplier of liquidity by purchasing securities writed by local and foreign entities. The Central Bank makes this move to maintain financial stability. (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 government securities.New issues may impact on the lender of last (LLR) resort role. One issue is with respect 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 immersion of foreign bank branches into the country. The third issue is the greater sensitivity 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 environment as a way to instigate financial stability. The lender of last resort (LLR) facility cannot be handled by the financial banks of the private