Managing the Financial stress in a Central Banker’s perspective

Associate Vice-President - BFSI, Delivery

December 19, 2016

Managing the Financial stress in a Central Banker’s perspective

As we all know, the banks are in the business of selling financial products and related services. Due to the very risky nature of business dealing with large public monies, they are established and governed under the strict control of Federal Reserve. Federal Reserve’s one of the main functions is to provide continuous oversight to all such licensed banks on their operations and periodic performance.

Unlike other industry sectors where demand and supply refer distinctly to finished goods and raw materials, money alone supplements both demand and supply in the banking business. In simple terms, it is the demand for credit/loans that drives the supply of deposits in banks. In a steady or growing economy, one ideally sees the growing credit demand driving the demand for deposits, thereby assuring a better return to the depositors on their pledged money. On the contrary, a lower demand for credits lowers the demand for deposits thus making the deposits rate less attractive.

Besides the above duo (demand and supply), there is a third dimensional play into the demand-supply economics, and it is the purchasing power of the currency. It is essential that all these three strike equilibrium for the economy to perform at optimum. You might have seen instances of Federal Reserves across the world intervening to uphold the currency value in order to sustain the purchasing power against inflationary conditions. We have also seen the losing purchasing power gradually reduce the economic activities under inflation. However, this article doesn’t cover inflation due to inherent cost escalation in supply and demand as it is not seen main stream in Federal Reserve’s perspective.

One of the functions of financial supervision within any Federal Reserve is to keep a constant watch on inflation by monitoring the ‘key health parameters’ of the industry sector vis-à-vis the overall economic conditions of the country. The other functions include micro assessment of the ‘Key Performance Indicators’ related bank’s Capital, Asset quality, Earnings, Liquidity position, quality of Management and its business Sensitivity to market risk to ensure operational prudence. Any shortfall will soon prompt Federal Reserve’s intervention as it may be necessary with proper remedial action. The Federal Reserve may also effect a macro change in terms of ‘policy change’ (when the issue becomes more common across the sector), in order to reinstate equilibrium in the system.

Now if you ask me are there any ready tools available to administer such activities within the financial eco-system, which can ease out the job of a financial supervisor, then I would say YES with utmost CERTAINTY! The reason being, I see our own native product ‘vRegCoSS’ (valtech Regulatory and Compliance System) exclusively designed to serve the very purpose of a total financial supervision!!

vRegCoSS is a GRC (Governance, Risk, Compliance) based framework, conceptualised and designed on a multi-tier web architecture. It is digitally enabled mainly to provide a 360° view of the institution in a third-party perspective by connecting and listening to the social media. Primarily it is built on the premise of loading/overloading supervisors with as many data points (through dashboards and alerts) as it could, in order to help them do a meaningful assessment of the situation the bank is in. While it provides all necessary tools to monitor and measure KPIs relating to bank’s CAMELS, it also eases decision making by publishing the possible remedial measures.

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