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Financial Systemic Stability: Challenging Aspects of Central Banks

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Author Info

  • Wanvimol Sawangngoenyuang

    (Bank of Thailand)

  • Sukrita Sa-nguanpan

    (Bank of Thailand)

  • Worawut Sabborriboon

    (Bank of Thailand)

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    Abstract

    Since 2007 global financial crisis, many central banks have tended to focus on financial stability much more than ever. Lessons learned from recent crises witness that in a period of sustained economic growth with low and stable inflation, financial imbalances could adversely affect financial system and real economy, which eventually leads to financial crises. In addition, the cost of crises becomes increasingly expensive over time because crises themselves have been more systemic. Risk from one financial institution can easily transfer to others and then to the whole financial market. Thus, current crises highlight the importance of financial stability role of central banks in two main aspects, crisis prevention and crisis management. The paper indicates that in recent financial crises, many central banks have stepped beyond their traditional roles in order to ensure financial system stability. Some instruments and measures that central banks have implemented can be considered as unconventional ones. Looking forward, these practices then lead to new challenges for central banks in three main aspects: risk identification, risk mitigation, and policy issuance process. Eventually, this paper also provides policy implications to Bank of Thailand, based on international experiences and lessons learned from recent crises.

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    File URL: http://www.bot.or.th/Thai/EconomicConditions/Publication/DiscussionPaper/dp062012_eng.pdf
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    Bibliographic Info

    Paper provided by Economic Research Department, Bank of Thailand in its series Working Papers with number 2012-06.

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    Length: 42 pages
    Date of creation: Jun 2012
    Date of revision:
    Handle: RePEc:bth:wpaper:2012-06

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    Keywords: Financial Systemic Stability;

    This paper has been announced in the following NEP Reports:

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    1. Sebastian Schich & Byoung-Hwan Kim, 2010. "Systemic Financial Crises: How to Fund Resolution," OECD Journal: Financial Market Trends, OECD Publishing, vol. 2010(2), pages 1-34.
    2. Denis Beau & Christophe Cahn & Laurent Clerc & BenoƮt Mojon, 2013. "Macro-Prudential Policy and the Conduct of Monetary Policy," Working Papers Central Bank of Chile 715, Central Bank of Chile.
    3. Agur, I. & Demertzis, M., 2010. "Monetary Policy and Excessive Bank Risk Taking," Discussion Paper 2010-30S, Tilburg University, Center for Economic Research.
    4. Martina Cecioni & Giuseppe Ferrero & Alessandro Secchi, 2011. "Unconventional Monetary Policy in Theory and in Practice," Questioni di Economia e Finanza (Occasional Papers) 102, Bank of Italy, Economic Research and International Relations Area.
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