Financial Instability and the Decline(?) of Banking: Public Policy Implications
AbstractBanking plays two roles in a modern capitalist economy: It provides a means of payment and channels resources into capital development. These functions are being performed to a decreasing extent by banks and it appears that this trend will continue. Such developments suggest that the economic role of central banks needs to be reviewed because the role of banks is significant in the ability of the central bank to conduct monetary policy. This ability is changing due the transformation of the channels through which Federal Reserve operations affect the economy away from affecting the availability or cost of financing and toward affecting uncertainty, the evaluation by portfolio managers of the viability of enterprises, and the stability of markets. When central bank operations affect the uncertainty of financial market agents, market reactions will often be out of proportion to the size of the operation. The decline in the importance of banks in financing the capital development of the economy tends to increase the significance of other institutions, such as the Securities and Exchange Commission (SEC) relative to that of the Federal Reserve. The policy question that arises is whether the existing institutional structure of regulation and supervision of financial institutions needs to be changed in a serious way. In general the discourse on economic policy takes place on two plains. One is that of the day-to-day operations of the "authorities" and the rules if any which should guide them. This paper concentrates on the issues of the legislating and associated administrative decisions that affect the structure and operations of banking and financial markets and the government's involvement in setting rules which constrain and contain banking and financial markets.
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 InfoPaper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_127.
Date of creation: Oct 1994
Date of revision:
Contact details of provider:
Web page: http://www.levyinstitute.org
Other versions of this item:
- Hyman P. Minsky, 1994. "Financial instability and the decline(?) of banking: public policy implications," Proceedings 20, Federal Reserve Bank of Chicago.
- Hyman P. Minsky, 1999. "Financial Instability and the Decline (?) of Banking: Public Policy Implications," Macroeconomics 9903008, EconWPA.
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Mirakhor, Abbas & Krichene, Noureddine, 2009. "The Recent Crisis: Lessons for Islamic Finance," MPRA Paper 56022, University Library of Munich, Germany.
- Ronnie J. Phillips, . "Narrow Banking Reconsidered, The Functional Approach to Financial Reform," Economics Public Policy Brief Archive ppb_17, Levy Economics Institute.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marie-Celeste Edwards).
If references are entirely missing, you can add them using this form.