The central bank’s balance sheet

Course book 2: English for Banking and Finance - Part 2 has present the content cash flow; the balance sheet; the income statement; the cash flow statement; taking care of corporate clients; loans, credit lines and leasing; company restructuring and loan modification; bankruptcy; national and central banks; liquidity and the business cycle; economic change;...

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In this chapter, we need to understand how the central bank interacts with the financial system. What is it that central banks buy and sell? What are the assets and liabilities on their balance sheets? How do they control those assets and liabilities, and why might they want to hide them from the public?...

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This paper provides an account of the financial crisis that began on 9 August 2007 and continued into 2008. It is the story of how the crisis came about and how the Federal Reserve worked to contain the damage. To understand what has happened, I will start with financial developments that led up to the crisis. Section II describes some of the most relevant recent innovations in the financial system and their impact on residential mortgage lending, the focus of the early stages of the crisis.

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(BQ) Continued part 1, the document Financial markets, banking and money (Fifth edition): Part 2 has contents: Central banks in the world today, the central bank balance sheet and the money supply process, money growth, money demand, and modern monetary policy, understanding business cycle fluctuations,... and other contents. Invite you to refer.

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(bq) part 2 book "money, banking, and financial markets" has contents: depository institutions: banks and bank management, financial industry structure, regulating the financial system, central banks in the world today, the central bank balance sheet and the money supply process,...and other contents.

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This chapter presents the following content: The need for independence; decision-making by committee; the need for accountability and transparency; the policy framework, policy trade-offs, and credibility; the central bank’s balance sheet; assets;...

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Chapter 17 - The central bank balance sheet and the money supply process. In this chapter, we need to understand how the central bank interacts with the financial system. What is it that central banks buy and sell? What are the assets and liabilities on their balance sheets? How do they control those assets and liabilities, and why might they want to hide them from the public?...

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Research will focus on the basic theory in terms of liquidity management of the central bank, the status of liquidity to execute the monetary policy of the central bank by forecasting method from currency balance sheet and propose management solution on liquidity of the central bank monetary policy.

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Diamond and Rajan (2009) argue that securitisation also plays an important role in the transmission of interest rate shocks to the housing market. Securitisation allows banks to share risks by moving them off their balance sheets. This leads to an increase in banks' risk appetite and strengthens the `risk-taking channel' described above. To the extent that banks become more lenient in their lending standards, the 'nancial accelerator' effect may be strengthened as well.

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As the Basel Committee on Banking Supervision has pointed out, it has become increasingly important to look beyond the traditional earnings and economic value effects and assess indirect interest rate effects as well. Taking a broader view of the potential earnings impact of changing interest rates, banks also need to take into consideration the growing share of (interest-sensitive) fee- based fi nancial services (loan servicing, asset securitization programs, pay- ments etc.).

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As they make these decisions, policymakers will need to consider the distortions caused by prolonged conditions of monetary ease. After all, sustained low interest rates have been identified by many as an important factor that contributed to the crisis (see BIS, 79th Annual Report, Chapter I). At the same time, policymakers should also closely monitor the distortions arising from unconventional monetary policy tools. These include price distortions in bond markets that can result from changes in central banks’ criteria for eligible repo collateral and from their asset purchases.

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The sharp rise in funding costs and growing concerns over adequate capitalisation toward the end of 2011 added to existing market pressures on European banks to deleverage. Deleveraging is part of a necessary post-crisis adjustment to remove excess capacity and restructure balance sheets, thus restoring the conditions for a sound banking sector. That said, the confluence of funding strains and sovereign risk led to fears of a precipitous deleveraging process that could hurt financial markets and the wider economy via asset sales and contractions in credit.

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There are also papers suggesting that the link between central bank finances and policy outcomes is not straightforward, and that other aspects are crucial, too. For example, Ueda (2004) wrote: “Summing up the experiences of insolvent central banks, my conclusion is that the maintenance of a sound balance sheet is, in general, neither a necessary nor a sufficient condition for fulfilling a central bank’s responsibility, but there have been cases where an unhealthy balance sheet became a major obstacle to price stability.

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A general overview of the literature focusing on the origins of losses, discussing the intertemporal solvency of central banks and modelling their balance sheets has been presented already in Cincibuch et al. (2008; 2009). Many useful general references can also be found in a recently published book edited by Milton and Sinclair (2011). In the present paper, we thus limit ourselves to reviewing specifically those papers that have explicitly discussed the link from central bank finances to policy pursuit, with an emphasis on empirical work.

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The empirical literature on this issue is so far very limited. One notable exception is the paper by Klüh and Stella (2008). The authors of this paper found a relatively stable and robust negative relationship between central bank financial strength and inflation, but at the same time suggested that only a relatively strong impairment of the central bank’s balance sheet would result in a significant worsening of inflation performance. Another recent contribution is Adler et al.

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Since the global financial crisis began in 2007, there has been a lot of hand-wringing about the independence of central banks. Some commentators today would suggest that the recent large scale purchases of government bonds by central banks inherently represent a compromise of their independence from elected officials. Others will assert that the central banks which purchased private-sector securities, thereby jeopardizing their balance sheets and supposedly making political asset allocations, are the ones which have put their independence at risk.

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Reading 8/50 The bank of England The bank of England is the central bank of the UK. For historical reasons, it is divided into Issue Departments, each with separate balance sheets. The Issue Department is responsible for issuing banknotes, shown as

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