Financial instability and banks’ balance sheets: A note
Following the recent financial crisis, it is sometimes argued that financial institutions should be regulated to a greater extent than before in order to prevent a recurrence of global financial crises. It is argued here that since banks create liquidity ex nihilo in exchange for financial collatera...
| Main Author: | |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
AOSIS
2012-09-01
|
| Series: | South African Journal of Business Management |
| Online Access: | https://sajbm.org/index.php/sajbm/article/view/477 |
| Summary: | Following the recent financial crisis, it is sometimes argued that financial institutions should be regulated to a greater extent than before in order to prevent a recurrence of global financial crises. It is argued here that since banks create liquidity ex nihilo in exchange for financial collaterals whose nominal values are subject to market fluctuations, in general, banks’ regulation can have only a limited effect on the stability of the financial system. Monetary policy of central banks (i.e., setting short term interest rate) is essential to monitor asset prices and thereby create a stable financial environment. |
|---|---|
| ISSN: | 2078-5585 2078-5976 |