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Central Bank (CAMEL
framework (Asset quality
NPL/Total loans - low =…
Central Bank
CAMEL
framework
Asset quality
- NPL/Total loans - low = higher quality of loan assets
- Recovery of NPL and interest-in-suspense - recovery efforts and success in collecting back NPL
- Diversification of portfolio - not concentrated on one sector
Management efficiency
- Technical competence - mng knowledge of products & systems
- Leadership & administrative ability - clear direction & course to follow
- Banking regulations compliance - how well bank is run
- Ability to plan and respond to change - important in fast-changing world
Capital Adequacy
- maintain capital commesurate to aggregate size of its credit, market and operational risk exposure
- cushion against impact of unexpected loss - protect creditor and depositor
- min risk-weighted capital ratio - 8%
Earning Performance
- ROA & ROE & growth in profits - adequate & in line with requirements
- NPL/total loan - low = higher profit for bank
Liquidity
- Loan/deposit - high = bank overtrade, i.e. overlending (high liquidity risk)
- High liquidity ratio (core deposit/total assets ratio) - bank capable in meeting any demands by depositors/borrowers (low liquidity risk)
Functions
Stabilizing Money and Capital Markets
- Transmit saving to capital of investment - enhance economic growth rate
- Foster mature development in financial market - stable flow of funds
- Provide funds to major depository institutions or supply of credit to investors to incr investment activities
Control Money Supply
- avoid severe inflation
- control credit expansion & liquidity
- nation's MS = public's currency & coin + value in their bank's acc
Lender of Last Resort
- provide liquid funds to FI - when alternative dried up
- E.g. disc window - CB provide funds to FI - cover ST deficiencies - meet up capital require reservations
- only CB - large amount of emergency funds - immediate needs
Maintaining and Improving Payment Mechanism
- CB - clear cheques, supply of currency & coins, wiring funds, preserve confidence in monetary unit value
- smooth & efficient pmt mechanism - enhance operation
Objectives
Promote monetary stability & sound financial structure
- Bank maintain reserve acc with Gov
- BNM inspect and conduct investigation on B when necessary
- Lender of last resort
Influence credit situation to advantage of country
- availability and cost of money and credit consonant with national macroeconomic objectives
- ensure supply of money and volume of credit is elastic to demands in domestic eco w/o creating undue pressure on resources
Act as banker & financial advisor to Msian gov
- Manage issue of gov securities
- Funds from tax collection and div pmt placed with BNM
- Operations of gov acc, public debt and floatation of gov loans, locally and overseas
Issue currency & keep reserves to safeguard currency value
- Print currency notes and mint coin
- safeguard local currency - maintain goal & foreign currency reserves to 'back up' currency value
Should CB be
independent?
-
Def
Independence from political influence and pressure in conduct, esp monetary policy
Answer
- Common - instrument independence w/o goal independence
- Rare - goal w/o instrument
-
Intro
-
affect int. rate, amt of credit, MS, all that have direct impact on financial markets and aggregate output and inflation
Goals
Types
Achieve max sustainable output & employment
- relate MS & credit supply
- ↑ prod - capital & inv to expand biz & inv
- ↑ MS - ↑prod lvl - ↑ employment - ↑ income - ↑ price lvl - ↑ inf r
-
Decision
Primary: Promote stable prices
- avoid severe inflation - inf can reduce eco growth
- promote & stabilize flow of saving from surplus-spending to deficit-spending
- ensure smooth and adequate flow of funds - adequate financing available