Unit 3.2 Regulatory Framework - International Perspective


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This presentation covers regulatory framework of international finance from an International Perspective – Federal Bank, European Central Bank and guidelines for international investments given by International Chambers of Commerce (ICC).

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Unit 3.2 Regulatory Framework - International Perspective

  1. 1. International Perspective – Federal BankEuropean Central BankICC Guidelines
  2. 2. Federal BankEuropean Central BankICC Guidelines2Mrs. Charu Rastogi, Asst.Professor
  3. 3. 3Mrs. Charu Rastogi, Asst.Professor
  4. 4. What is the Fed? Central bank of theUnited States Established in1913 Purpose is toensure a stableeconomy for thenation4Mrs. Charu Rastogi, Asst. Professor
  5. 5.  Conduct the nation’s monetary policy Supervise and regulate bankinginstitutions Operate a nationwide payments system5Mrs. Charu Rastogi, Asst. Professor
  6. 6.  Board of Governors 12 Reserve Banks Federal OpenMarket Committee6Mrs. Charu Rastogi, Asst. Professor
  7. 7.  Seven members◦ Appointed by the president◦ Confirmed by the Senate◦ Serve 14-year terms Work includes:◦ Analyzing economicdevelopments◦ Supervising and regulatingthe operations of FederalReserve Banks◦ Exercising responsibility inthe nation’s paymentssystem7Mrs. Charu Rastogi, Asst. Professor
  8. 8.  Work includes (cont’d):◦ Administering consumercredit protection laws◦ Authorizing changes inbanks’ reserverequirements◦ Supervising Fed memberbanks and other financialentities◦ Authorizing changes inthe Fed’s discount rate8Mrs. Charu Rastogi, Asst. Professor
  9. 9. 9Mrs. Charu Rastogi, Asst.Professor
  10. 10.  Operate a nationwide paymentssystem Distribute the nation’s currencyand coin Supervise and regulate memberbanks and bank holdingcompanies Serve as banker for the U.S.Treasury Contribute to monetarypolicymaking through Bankpresidents’ participation in theFOMC10Mrs. Charu Rastogi, Asst. Professor
  11. 11.  Promote safety andsoundness of bankingsystem along with otherregulatory bodies◦ FDIC, OCC, OTS, state bankingregulators Ensure compliance with lawsand regulations Oversee internationalbanking interests Administer consumer creditprotection laws11Mrs. Charu Rastogi, Asst. Professor
  12. 12.  Supply currency andcoin to bankinginstitutions Clear more than one-third of nation’schecks Transfer fundselectronically (ACH,Fedwire) Serve as bank for theU.S. Treasury12Mrs. Charu Rastogi, Asst. Professor
  13. 13.  Gather, analyze anddisseminate economicdata Focus on all aspects ofthe economy (regionalto international levels) Analyze regional andnational markets andeconomic data Design and testeconometric modelsused to produce harddata that factor intopolicymaking decisions13Mrs. Charu Rastogi, Asst. Professor
  14. 14.  Policy changesaffect the nation’ssupply of moneyand credit. Actions have realshort- and long-term effects on theeconomy.14Mrs. Charu Rastogi, Asst. Professor
  15. 15.  Sets and directs U.S. monetarypolicy Seven governors Five presidents (New York andfour others on a rotatingbasis) Nonvoting presidentsparticipate fully Final interest rate decision ismade by the 12-memberFederal Open MarketCommittee (FOMC)15Mrs. Charu Rastogi, Asst. Professor
  16. 16. Stable PricesSustainableEconomic GrowthFullEmployment16Mrs. Charu Rastogi, Asst. Professor
  17. 17.  Discount Rate◦ The interest rate charged by the Federal Reserveto banks that borrow on a short-term (usuallyovernight) basis Reserve Requirements◦ The amount of money banks must keep onreserve at the Fed Open Market Operations◦ Buying and selling Treasury securities betweenthe Fed and selected financial institutions in theopen market◦ Most important tool; directed by the FOMC17Mrs. Charu Rastogi, Asst.Professor
  18. 18.  Federal Funds Rate◦ The market-based interest ratewhich banks charge each other onovernight loans of their reservebalances held at the Fed. The Fedachieves this rate through OpenMarket Operations.◦ A target rate Discount Rate◦ Applies to short-term loans madedirectly to commercial banks fromthe Federal Reserve System.◦ Typically set at 1 percentage pointabove the Federal Funds Rate.18Mrs. Charu Rastogi, Asst. Professor
  19. 19.  Each head office and branch of the FederalReserve System has a local Board of Directors.◦ 7–9 individuals Board members provide various perspectivesand economic data from different regions andindustries. Boards of directors vote on the discount rate. Boards of directors influence policymaking atthe national level through ―real-world‖ input.19Mrs. Charu Rastogi, Asst.Professor
  20. 20.  Generally, low interest ratesstimulate the economybecause there is moremoney available to lend.◦ Consumers buy cars andhouses.◦ Businesses expand, buyequipment, etc. Why does the Fed lowerinterest rates?◦ If inflation is in check, lowerrates stimulate economicactivity, thus boostingeconomic growth.20Mrs. Charu Rastogi, Asst. Professor
  21. 21.  The Fed raises interestrates as an effectiveway to fight inflation.◦ Inflation—a sustained risein the general price level;that is, all prices arerising together. Consumers pay moreto borrow money,dampening spending. Businesses havedifficulty borrowing;unemployment rises.21Mrs. Charu Rastogi, Asst. Professor
  22. 22. 22Mrs. Charu Rastogi, Asst.Professor
  23. 23.  The ECB is the central bank for Europessingle currency, the euro. It is one of the seven institutions of theEuropean Union (EU) listed in the Treaty onEuropean Union (TEU) The ECB’s main task is to maintain the eurospurchasing power and thus price stability inthe euro area. The euro area comprises the 17 EuropeanUnion countries that have introduced theeuro since 1999.23Mrs. Charu Rastogi, Asst.Professor
  24. 24.  The capital stock of the bank is owned by thecentral banks of all 27 EU member states. The bank was established by the Treaty ofAmsterdam in 1998, and is headquarteredin Frankfurt, Germany. The current President of the ECB is MarioDraghi, former governor of the Bank of Italy.24Mrs. Charu Rastogi, Asst.Professor
  25. 25. 25Mrs. Charu Rastogi, Asst.Professor
  26. 26. 26Mrs. Charu Rastogi, Asst.Professor
  27. 27.  the definition and implementation of monetary policy for the euro area; the conduct of foreign exchange operations; the holding and management of the official foreign reserves of the euro areacountries (portfolio management). the promotion of the smooth operation of payment systems. Banknotes: the ECB has the exclusive right to authorise the issuance ofbanknotes within the euro area. Statistics: in cooperation with the NCBs, the ECB collects statisticalinformation necessary for fulfilling the tasks, either from national authoritiesor directly from economic agents. Financial stability & supervision: the Eurosystem contributes to the smoothconduct of policies pursued by the authorities in charge related to theprudential supervision of credit institutions and the stability of the financialsystem. International and European cooperation: the ECB maintains working relationswith relevant institutions, bodies and forums both within the EU andinternationally in respect of tasks entrusted to the Eurosystem.27Mrs. Charu Rastogi, Asst.Professor
  28. 28. 28Mrs. Charu Rastogi, Asst.Professor
  29. 29. 29Mrs. Charu Rastogi, Asst.Professor
  30. 30. 30Mrs. Charu Rastogi, Asst.Professor
  31. 31.  It is the largest, most representative businessorganization in the world. The International Chamber of Commerce wasfounded in 1919 to serve world business bypromoting trade and investment, openmarkets for goods and services, and the freeflow of capital.31Mrs. Charu Rastogi, Asst.Professor
  32. 32.  Original guidelines issued in 1972 Revised guidelines were launched at theWorld Investment Forum, organized by theUnited Nations Conference on Trade andDevelopment (UNCTAD) in Doha, Qatar inApril 2012. The aim of the guidelines is to facilitatecross-border investment for investors andgovernments, as well as to harness the vastpotential of cross-border investment forstimulating balanced global growth.32Mrs. Charu Rastogi, Asst.Professor
  33. 33.  http://www.iccwbo.org/Data/Policies/2012/2012-ICC-Guidelines-for-International-Investment/33Mrs. Charu Rastogi, Asst.Professor
  34. 34. 34Mrs. Charu Rastogi, Asst.Professor