The role of central banks in crisis management – how do financial crisis simulation exercises help?
AbstractThe fundamental task and responsibility of central banks is to maintain and promote the stability of the financial system. In order to achieve this, central banks strive to prevent crises using all the instruments at their disposal. If a crisis occurs, central banks play a significant role in efficient crisis management and the crisis resolution process. In spite of the crisis prevention activity of the authorities – including central banks – crisis events can not be avoided. The crises potentially emerging in modern banking systems are basically the consequence of the imperfect functioning of financial markets. In addition, external shocks can trigger crises as well. In order to support the stability of the financial intermediary system and to help restore market confidence, there may be a need for central banks to carry out aggregate liquidity increasing measures which affect the market as a whole and for emergency liquidity assistance based on individual consideration, in line with the ‘lender of last resort’ function. Continuous development of crisis management work and the related instruments is needed in order to ensure quick and efficient central bank decisions. One of the most important elements of crisis management is the organisation of crisis simulation exercises. Within the European Union, special emphasis has been placed on the development of a crisis management framework aimed at promoting more efficient co-operation between the competent authorities, since a significant number of cross-border banking groups have been formed throughout Europe recently. A potential crisis in a parent bank’s country affecting a larger banking group may jeopardise the stability of the financial intermediary system in the countries of subsidiary banks as well, through the interrelationships within the group. This article outlines the significant assistance that these exercises can provide for central bank decisions and for the development of co-operation between authorities.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Magyar Nemzeti Bank (the central bank of Hungary) in its journal MNB Bulletin.
Volume (Year): 2 (2007)
Issue (Month): 2 (November)
central bank; emergency liquidity assistance; crisis management; crisis simulation exercise; financial stability.;
Find related papers by JEL classification:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statistics
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Johanna Jeney).
If references are entirely missing, you can add them using this form.