Tuesday, July 14, 2015

Frankfurt: Deutsche Bundesbank

This series of posts describes a study abroad course in which students visited several central banks and talked with central bankers about how they responded to—and sometimes failed to respond to—the global financial crisis, and how they are adjusting to their new roles.

by Viola

The Deutsche Bundesbank is the central bank of the Federal Republic of Germany and since 1999 it has been part of the Eurosystem—the central banking system of the Euro area— sharing responsibility with the other original central banks and the European Central Bank (ECB) for the single common currency. The Bundesbank is independent of instruction from the Federal government. The Bundesbank uses this nationwide network to perform its operation in the area of refinancing, clash supply and banking supervision. Let me explicate. Banking supervision in Bundesbank, mainly monitoring and examining the health of banks to ensure that banking system is efficacious and stable. For Bundesbank, banking supervision does not straightly interfere in transaction conducted by banks, but entrench regulatory groundwork. In other words, banking supervision improves the quality of banking.

During our trip to Bundesbank’s central office in Frankfurt am Main, we know that the overall overriding aim behind all of the Bundesbank’s activities is to safeguard the stability of the general price level and the financial system. The Bundesbank’s stability policy also relies on the support of economic, wage and fiscal policies. In correlate with inflation as support to economy, a too continued period of low inflation rates will bring forth alternative instrument. The decline of the inflation rate is chiefly result of falling energy cost and commodity prices. In addition, Bundesbank expects the Eurozone economy to pick up, added that the bank also needed to contemplate the tractable mandate thus leading to an increase in inflation.

The recent financial chaos and its severe economic consequences founded a major challenge for central banks and banking supervisors around the world. As the publics believe, there are a very large number of opinions from which it is possible to go through such a complex phenomenon as the sovereign debt crisis. In our meeting with one of Bundesbank ‘s research group researcher Michael Scharnagl, his allusion against ECB’s potentially unlimited program to buy the government bonds of euro zone sovereigns is expansionary because such measures pay attention on the symptoms and don't cure the roots of the crisis. Moreover, in concern with economy’s growth, the bank’s priority, he pointed, is to create the necessary institutional framework and incentives through improvement of authority structures in some crisis countries, e.g. structures of banks’ activities, of employment in financial sector and of distinguishing credits between corporate and household. If banks were to fail, they would usually only insure the deposits and not the banks themselves.


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