| Abstract: |
As well as providing an analysis of how financial stability could be sustained
through the appropriate targeting of policy instruments at debt gearing, this
paper aims to provide an overview of the respective roles which governments
and shareholders could assume in deterring financial institutions from overly
relying on certain policy measures (role of governments) and in reducing tax
burdens on tax payers (role of shareholders). The duration of the recent
Crisis has also witnessed the introduction of mechanisms aimed at bailing- in
financial institutions – rather than merely bailing them out. Even though
monetary policy measures should ultimately be targeted at macro level, the
respective roles assumed by governments and shareholders at micro level in
facilitating the phasing out of certain monetary policy measures and assuming
responsibility as the first resort during the impending collapse of a
financial institution, are also of vital importance. This paper also aims to
consider additional measures which could be implemented as a means of
mitigating the number of financial instititions which could become overly
dependent on monetary policy and liquidity sustenance measures provided during
deteriorating financial conditions. Greater focus on strategies aimed at
mitigating the number of financial institutions which could become overly
dependent (bail-in strategies which could address bail outs) – rather than
simply focussing on measures and exit strategies aimed at weaning such
institutions after assistance has been granted to these financial
institutions, could prove to be more effective. A brief comparative analysis
of the monetary policy response implemented in the Euro area during the recent
Financial Crisis (against that which was implemented in the United States),
will also be provided in this paper. |