Good question. Monetary policy in the form of interest rate controls have relatively little impact if the transmission mechanism in credit markets are not efficient. The pass through effect is a subject of investigation by many scholars. Most research on macroeconomic policy look at use of interest rate in monetary policy without detailing out the effectiveness of credit markets. In the real world, inefficiency prevails and there is a lag before the transmission mechanism works. Using a model to investigate overlook a lot of the details and the complexities of the credit markets in the transmission of monetary policy.

@ Chung. Thank you for your contributions.

I believe we are witnessing the inability of monetary policy to create aggregate demand, and rather, it initiates bubbles and artificial valuations based on manipulation of markets. It also devalues fiat currencies and can have a negative influence on trust in a financial system. This can lead to excessive leverage that has been shown to create an after-effect of consequences, many of which are not predictable due to the uncertainty of risk management policies across the board and the lack of political transparency.

In the past, we have relied too much on monetary policy to manage aggregate demand. While a significant (giant steps) increase will have an impact, small baby steps will not have an immediate impact, though expectations are affected. Quantifying the expectations is hard and most of the time it is guess estimate, no matter how elaborate the model is. The outcome is bubbles and liquidity trap are what we see today. We are still far away from a refine calibration of the impact. We have more to learn update ourselves on this progress.

Dear Colleagues and Friends from RG, Monetary policy shaped by central banks has a particularly significant impact on the lending policies of commercial banks, including the classic deposit-lending banking model and investment banks operating, among others, on the credit and interbank loan markets. Central banks, in order to control the level of systemic credit risk, influence through monetary policy instruments the lending activity of commercial banks, the revival of lending at banks in the situation of recession in the national economy, and enforce a reduction in the scale of loans granted to various types of business entities and the population when the bank the central states that the level of business credit and consumption is too high and the repayment of loans is carried out by borrowers with increasing delays and when the quality of loan portfolios in commercial banks decreases. However, over the past several decades, financial systems have changed significantly, the role of central banks has increased, currency and derivative markets have developed particularly dynamically.

In connection with the development of economic globalization in international financial systems, the increase in the scale of mergers and acquisitions in the field of capital transactions in the financial sector, which leads to the emergence of larger and larger banks operating globally, in addition to deregulation in financial markets, the growing importance of monetary policy in the context of interventionist economic policy, the development of international liquid exchange rate systems on currency markets, the development of derivatives used not only to hedge other financial transactions but also to speculative activities on capital markets, etc. since the 1970s, systemic credit risk has been increasing and the frequency and scale of domestic and supranational occurrences financial and economic crises. In connection with the increase in systemic credit risk, the importance of effective operation of financial supervision institutions and improvement of the credit risk management process is increasing.

In the 1990s, serious mistakes were made in allowing investment banking to be combined with the classic deposit and credit banking system in the Anglo-Saxon financial system, thus lifting restrictions and instruments ensuring a high level of system security in commercially operating financial systems. These types of erroneous changes in prudential regulations that reduce the scope of effective operation of financial supervision institutions and credit risk management systems increase the likelihood and scale of negative effects of subsequent financial and economic crises. To this should be added the serious mistakes that were made in shaping monetary policy and allowing for a rapid increase in public debt in public finances even before the global financial crisis emerged in autumn 2008. In the context of these facts and the increase in systemic credit risk, there are considerations whose main purpose is to verify the research thesis on the question of the possible excessive growth of the commercially operating financial system in modern economies and on an international scale, far above the needs and macroeconomic conditions of currently functioning national economies. Therefore, in order to verify this type of theses, one should consider the answer to the following question: Is the over-expanded commercially operating financial system operating more and more speculative on financial markets, including not only credit but also securities, derivatives and currency markets, speculative investments in raw materials, etc. in modern national economies and on a global scale may displace classically implemented investments involving the implementation of investment projects leading to the creation of real, direct, sustainable, investment financial economic goods by enterprises (financed from non-bank financial sources) and by the state (investments financed from public funds, with particular emphasis on national economies with their own national currency)?

The process of improving credit risk management is implemented mainly at the level of a specific commercial bank. Central and supervisory institutions, which mainly include central banking and banking supervision institutions, may affect some aspects of this process, correct possible excessive levels of systemic credit risk, especially in a situation where a specific bank unreliably implements prudential procedures in the field of lending activity or in a deteriorating situation loan portfolio quality caused by the recession in the domestic and possibly global economy. Before the emergence of the global financial crisis in autumn 2008, there was an unwritten rule in some financial environments that a large banking entity could not fail. The declaration of bankruptcy by one of the largest investment banks, Lehman Brothers, whose bankruptcy began with the global financial crisis, questioned this type of opinion regarding financial system entities.

To analyze the correlation of the effectiveness of the process of improving the credit risk management process in commercial banks and the shaping of monetary policy by the central bank, the key issue is the relationship between central banking and commercial banking that has been built over the years. For example, the issue of implementing central bank assistance functions for commercial banks in the event of a significant increase in liquidity and debt risk, problems with the effective management of assets and liabilities and / or in the case of high risk of bankruptcy. In such a situation, a commercial bank may ask the central bank for help in the form of low-interest loans, interest-bearing loans on preferential terms, while increasing the scope of financial management control. In addition, the possibility of buying commercial junk securities and other assets and outstanding loans from banks. This type of central banking assistance activity towards commercial banks, including investment banks, has been used on a large scale since September 2008, i.e. since the beginning of the development of the largest global economic crisis in the history of global financial crisis. However, it is possible to diagnose situations in which as part of this assistance activity of the central bank towards commercial banks, including investment banks, the moral risk and disregard of the principles, methods and procedures of the banking risk management process, including credit risk management, liquidity risk, may be neglected. debt risk and other risk categories.

For example, if central banking suggests to commercial banks, including investment banks operating on capital markets, that in the event of a financial crisis it will help to eliminate the potential risk of bankruptcy of many entities of the financial system, then how these declarations translate into an approach to improving the credit risk management process and to comply with banking procedures regarding lending and securities operations and to comply with good business practices? In my opinion, such unwritten declarations can increase moral risk and reduce pressure and the need to improve credit risk management processes. Does any of you examine this issue in the context of analyzing sources, factors of financial and economic crises? I am researching this issue and invite you to cooperation. I described the results of my research in scientific publications that are available on the Research Gate portal. I invite you to cooperation.

Best wishes

Dariusz Prokopowicz

Pay attention to the events taking place in the Repo market. While being removed from mainstream conversation, this should be alarming as it indicates that the central banks and their systems apparently have issues that remain unresolved and potentially dangerous to the overall health of the system.

Whenever the inner workings fail, the system is vulnerable and with regards to the central banks, there is now global pressure and competition to consider alternatives to centralized banking.

The global disparity in wealth can be tied to the global centralization of currency and capital via central bank policy and insider cronyism.