Unit 3.2 Regulatory Framework - International Perspective

International Perspective – Federal Bank
European Central Bank
ICC Guidelines

Federal Bank
European Central Bank
ICC Guidelines
2
Mrs. Charu Rastogi, Asst.
Professor

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Professor

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

 Conduct the nation’s monetary policy
 Supervise and regulate banking
institutions
 Operate a nationwide payments system

 Board of Governors
 12 Reserve Banks
 Federal Open
Market Committee

 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

 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

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Professor

 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

 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

 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

 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

 Policy changes
affect the nation’s
supply of money
and credit.
 Actions have real
short- and long-
term effects on the
economy.

 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)

Stable Prices
Sustainable
Economic Growth
Full
Employment

 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
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Professor

 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.

 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.
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Professor

 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.

 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.

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Professor

 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.
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Professor

 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.
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Professor

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Professor

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Professor

 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.
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Professor

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Professor

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Professor

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Professor

 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.
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Professor

 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.
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Professor

 http://www.iccwbo.org/Data/Policies/2012/2
012-ICC-Guidelines-for-International-
Investment/
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Professor

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Professor

Unit 3.2 Regulatory Framework - International Perspective

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Unit 3.2 Regulatory Framework - International Perspective