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Unit 3.2 Regulatory Framework - International Perspective

Unit 3.2 Regulatory Framework - International Perspective

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).

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 Bank European Central Bank ICC Guidelines
  2. 2. Federal Bank European Central Bank ICC Guidelines 2 Mrs. Charu Rastogi, Asst. Professor
  3. 3. 3 Mrs. Charu Rastogi, Asst. Professor
  4. 4. What is the Fed?  Central bank of the United States  Established in 1913  Purpose is to ensure a stable economy for the nation 4Mrs. Charu Rastogi, Asst. Professor
  5. 5.  Conduct the nation’s monetary policy  Supervise and regulate banking institutions  Operate a nationwide payments system 5Mrs. Charu Rastogi, Asst. Professor
  6. 6.  Board of Governors  12 Reserve Banks  Federal Open Market Committee 6Mrs. Charu Rastogi, Asst. Professor
  7. 7.  Seven members ◦ Appointed by the president ◦ Confirmed by the Senate ◦ Serve 14-year terms  Work includes: ◦ Analyzing economic developments ◦ Supervising and regulating the operations of Federal Reserve Banks ◦ Exercising responsibility in the nation’s payments system 7Mrs. Charu Rastogi, Asst. Professor
  8. 8.  Work includes (cont’d): ◦ Administering consumer credit protection laws ◦ Authorizing changes in banks’ reserve requirements ◦ Supervising Fed member banks and other financial entities ◦ Authorizing changes in the Fed’s discount rate 8Mrs. Charu Rastogi, Asst. Professor
  9. 9. 9 Mrs. Charu Rastogi, Asst. Professor
  10. 10.  Operate a nationwide payments system  Distribute the nation’s currency and coin  Supervise and regulate member banks and bank holding companies  Serve as banker for the U.S. Treasury  Contribute to monetary policymaking through Bank presidents’ participation in the FOMC 10Mrs. Charu Rastogi, Asst. Professor
  11. 11.  Promote safety and soundness of banking system along with other regulatory bodies ◦ FDIC, OCC, OTS, state banking regulators  Ensure compliance with laws and regulations  Oversee international banking interests  Administer consumer credit protection laws 11Mrs. Charu Rastogi, Asst. Professor
  12. 12.  Supply currency and coin to banking institutions  Clear more than one- third of nation’s checks  Transfer funds electronically (ACH, Fedwire)  Serve as bank for the U.S. Treasury 12Mrs. Charu Rastogi, Asst. Professor
  13. 13.  Gather, analyze and disseminate economic data  Focus on all aspects of the economy (regional to international levels)  Analyze regional and national markets and economic data  Design and test econometric models used to produce hard data that factor into policymaking decisions 13Mrs. Charu Rastogi, Asst. Professor
  14. 14.  Policy changes affect the nation’s supply of money and credit.  Actions have real short- and long- term effects on the economy. 14Mrs. Charu Rastogi, Asst. Professor
  15. 15.  Sets and directs U.S. monetary policy  Seven governors  Five presidents (New York and four others on a rotating basis)  Nonvoting presidents participate fully  Final interest rate decision is made by the 12-member Federal Open Market Committee (FOMC) 15Mrs. Charu Rastogi, Asst. Professor
  16. 16. Stable Prices Sustainable Economic Growth Full Employment 16Mrs. Charu Rastogi, Asst. Professor
  17. 17.  Discount Rate ◦ The interest rate charged by the Federal Reserve to banks that borrow on a short-term (usually overnight) basis  Reserve Requirements ◦ The amount of money banks must keep on reserve at the Fed  Open Market Operations ◦ Buying and selling Treasury securities between the Fed and selected financial institutions in the open market ◦ Most important tool; directed by the FOMC 17 Mrs. Charu Rastogi, Asst. Professor
  18. 18.  Federal Funds Rate ◦ The market-based interest rate which banks charge each other on overnight loans of their reserve balances held at the Fed. The Fed achieves this rate through Open Market Operations. ◦ A target rate  Discount Rate ◦ Applies to short-term loans made directly to commercial banks from the Federal Reserve System. ◦ Typically set at 1 percentage point above the Federal Funds Rate. 18Mrs. Charu Rastogi, Asst. Professor
  19. 19.  Each head office and branch of the Federal Reserve System has a local Board of Directors. ◦ 7–9 individuals  Board members provide various perspectives and economic data from different regions and industries.  Boards of directors vote on the discount rate.  Boards of directors influence policymaking at the national level through ―real-world‖ input. 19 Mrs. Charu Rastogi, Asst. Professor
  20. 20.  Generally, low interest rates stimulate the economy because there is more money available to lend. ◦ Consumers buy cars and houses. ◦ Businesses expand, buy equipment, etc.  Why does the Fed lower interest rates? ◦ If inflation is in check, lower rates stimulate economic activity, thus boosting economic growth. 20Mrs. Charu Rastogi, Asst. Professor
  21. 21.  The Fed raises interest rates as an effective way to fight inflation. ◦ Inflation—a sustained rise in the general price level; that is, all prices are rising together.  Consumers pay more to borrow money, dampening spending.  Businesses have difficulty borrowing; unemployment rises. 21Mrs. Charu Rastogi, Asst. Professor
  22. 22. 22 Mrs. Charu Rastogi, Asst. Professor
  23. 23.  The ECB is the central bank for Europe's single currency, the euro.  It is one of the seven institutions of the European Union (EU) listed in the Treaty on European Union (TEU)  The ECB’s main task is to maintain the euro's purchasing power and thus price stability in the euro area.  The euro area comprises the 17 European Union countries that have introduced the euro since 1999. 23 Mrs. Charu Rastogi, Asst. Professor
  24. 24.  The capital stock of the bank is owned by the central banks of all 27 EU member states.  The bank was established by the Treaty of Amsterdam in 1998, and is headquartered in Frankfurt, Germany.  The current President of the ECB is Mario Draghi, former governor of the Bank of Italy. 24 Mrs. Charu Rastogi, Asst. Professor
  25. 25. 25 Mrs. Charu Rastogi, Asst. Professor
  26. 26. 26 Mrs. 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 area countries (portfolio management).  the promotion of the smooth operation of payment systems.  Banknotes: the ECB has the exclusive right to authorise the issuance of banknotes within the euro area.  Statistics: in cooperation with the NCBs, the ECB collects statistical information necessary for fulfilling the tasks, either from national authorities or directly from economic agents.  Financial stability & supervision: the Eurosystem contributes to the smooth conduct of policies pursued by the authorities in charge related to the prudential supervision of credit institutions and the stability of the financial system.  International and European cooperation: the ECB maintains working relations with relevant institutions, bodies and forums both within the EU and internationally in respect of tasks entrusted to the Eurosystem. 27 Mrs. Charu Rastogi, Asst. Professor
  28. 28. 28 Mrs. Charu Rastogi, Asst. Professor
  29. 29. 29 Mrs. Charu Rastogi, Asst. Professor
  30. 30. 30 Mrs. Charu Rastogi, Asst. Professor
  31. 31.  It is the largest, most representative business organization in the world.  The International Chamber of Commerce was founded in 1919 to serve world business by promoting trade and investment, open markets for goods and services, and the free flow of capital. 31 Mrs. Charu Rastogi, Asst. Professor
  32. 32.  Original guidelines issued in 1972  Revised guidelines were launched at the World Investment Forum, organized by the United Nations Conference on Trade and Development (UNCTAD) in Doha, Qatar in April 2012.  The aim of the guidelines is to facilitate cross-border investment for investors and governments, as well as to harness the vast potential of cross-border investment for stimulating balanced global growth. 32 Mrs. Charu Rastogi, Asst. Professor
  33. 33.  http://www.iccwbo.org/Data/Policies/2012/2 012-ICC-Guidelines-for-International- Investment/ 33 Mrs. Charu Rastogi, Asst. Professor
  34. 34. 34 Mrs. Charu Rastogi, Asst. Professor

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