n South African Journal of Business Management - Financial instability and banks' balance sheets : a note

Volume 43, Issue 3
  • ISSN : 2078-5585


Following the recent financial crisis, it is sometimes argued that financial institutions should be regulated to a greater extent than before in order to prevent a recurrence of global financial crises. It is argued here that since banks create liquidity in exchange for financial collaterals whose nominal values are subject to market fluctuations, in general, banks' regulation can have only a limited effect on the stability of the financial system. Monetary policy of central banks (i.e., setting short term interest rate) is essential to monitor asset prices and thereby create a stable financial environment.

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