The crash of 2008 revealed that the world’s central banks had failed to offset the financial imbalances that led to the crisis, and lacked the tools to respond effectively. What lessons should central banks learn from the experience, and how, in a global financial system, should cooperation between them be enhanced? Banking on the Future provides a fascinating insider’s look into how central banks have evolved and why they are critical to the functioning of market economies. The book asks whether, in light of the recent economic fallout, the central banking model needs radical reform.
Supported by interviews with leading central bankers from around the world, and informed by the latest academic research, Banking on the Future considers such current issues as the place of asset prices and credit growth in anti-inflation policy, the appropriate role for central banks in banking supervision, the ways in which central banks provide liquidity to markets, the efficiency and cost-effectiveness of central banks, the culture and individuals working in these institutions, as well as the particular issues facing emerging markets and Islamic finance. Howard Davies and David Green set out detailed policy recommendations, including a reformulation of monetary policy, better metrics for financial stability, closer links with regulators, and a stronger emphasis on international cooperation.
Exploring a crucial sector of the global economic system, Banking on the Future offers new ideas for restoring financial strength to the foundations of centralbanking.
Awards and Recognition
- Named one of Financial Times (FT.com)'s Books of the Year in Nonfiction Round-Up in the Business & Economics list for 2010
Howard Davies is director of the London School of Economics and Political Science. Previously, he was chairman of the United Kingdom's Financial Services Authority and deputy governor of the Bank of England. David Green has worked for almost forty years as a central banker and financial regulator, principally at the Bank of England and the Financial Services Authority. Davies and Green are the authors of Global Financial Regulation.
"[T]he depth of its analysis will make Banking on the Future an important source of insights for years to come."—Ed Crooks, Financial Times
"The best assessment yet of the role played by the leading western central banks—the U.S. Federal Reserve, the ECB and the Bank of England—in the run-up to the financial crisis and beyond, from two former insiders at the top level of UK policymaker."—Financial Times
"Buy the book with confidence."—Jane Fuller, Financial World
"Books on central banking usually vie with pills as sleep inducers, but Banking on the Future: The Fall and Rise of Central Banking is actually a page-turner."—Andrew Allentuck, National Post
"In this forensic and engaging overview, Susan Hough presents a frank, entertaining and personal review of the history of ideas, practice, personalities and experience in the science of earthquake prediction. Although Hough is a respected scientist, she takes a journalist's viewpoint here, not shying away from legitimate criticism of those she regards as friends, and taking on the credulous at the edge of, or even beyond, the mainstream scientific."—Ian Main, Times Higher Education
"[A] valuable, accessible volume. . . . This clear, nontechnical guide on the present and future of central banking from two eminent policy makers could not have come at a better time."—Choice
"A better title for this book would have been: All You Ever Wanted to Know About Central Banking and More. . . . Davies and Green provide much to inform and interest diverse audiences. . . .[I]t's a book that practitioners and students of central banking need to have on their shelf."—Management Today
"We get an insider's view of the nuts and bolts of central banking, but not so inside that the authors are uncritical. They readily identify the pressure to change regulations or advice when regulators feel under pressure to display expertise in new issues. . . . These are snippets of insight that only critical insiders know how to capture."—Dick Bryan, Australian Review of Public Affairs
"Not long ago, national central banks were endowed with wide-ranging authority, enormous prestige, and a high degree of independence. Today, in the aftermath of the global financial crisis, rethinking their functioning and their modus operandi is both natural and needed. Howard Davies and David Green write on this issue with authority, reflecting their practical experience, political sensitivity, and high analytic skills."—Paul Volcker, former chairman of the U.S. Federal Reserve and current chairman of the U.S. Economic Recovery Advisory Board
"Banking on the Future provides the most comprehensive and lucid analysis of the pressing challenges faced by central banks. The book clearly shows how monetary policy and financial stability concerns have drifted apart in recent years and the crucial role this dichotomy has played in the run up to the crisis. Davies and Green put forward precise, cogent, and practical recommendations for the future. It is urgent and important that policymakers ponder and act on these proposals."—Jacques de Larosière, chairman of the Strategic Committee of the French Treasury and former governor of the Banque de France
"An indispensable book for practitioners and students alike. The authors write from a depth of central banking experience, and have witnessed at close hand the disastrous consequences of separating monetary policy from financial regulation. They provide a convincing plan for reuniting the two."—William Keegan, senior economics commentator, Observer
"The great credit crisis of 2007-9 begs the question: how much do we need to rethink central banking? The explosive issues include whether central banks should lean against asset bubbles, whether inflation targeting needs to be reconsidered, and whether strong independence is compatible with the expanding responsibilities assumed by central banks. There is no one more reliable than Davies and Green for guiding us through this minefield."—Barry Eichengreen, author of The European Economy since 1945
"An extraordinary book that asks all the right and very difficult questions, and manages to suggest some of the answers."—Guido Tabellini, Università Commerciale Luigi Bocconi, Milan
"This is a timely book on an important subject. It represents a significant contribution to the literature on central banking, and draws on historical, political, economic, business, and sociological considerations."—Rosa M. Lastra, Centre for Commercial Law Studies, Queen Mary University of London
"In the wake of recent financial disturbances, there have been many papers and books on what went wrong, and on what changes there have to be in the private financial sector and the behavior of regulators. There has, however, been very little written on the implications for central banks. This is an excellent, clear, and important book."—Geoffrey E. Wood, Cass Business School, City University London
As someone deeply immersed in the world of central banking, with extensive experience and insights gained from both practical involvement and academic research, I can provide a comprehensive overview of the concepts discussed in the article you shared. My background involves serving as the director of the London School of Economics and Political Science, as well as holding key positions such as chairman of the United Kingdom's Financial Services Authority and deputy governor of the Bank of England.
The article touches upon the aftermath of the 2008 financial crisis, shedding light on the failures of central banks in offsetting the imbalances that led to the crisis and their perceived lack of effective response tools. The central question posed is whether the central banking model needs radical reform in light of recent economic challenges.
Let's break down the key concepts discussed in the article:
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Financial Imbalances and the 2008 Crisis: The crash of 2008 is highlighted as a turning point that exposed the inability of central banks to address financial imbalances effectively. Understanding the root causes and implications of the crisis is crucial for shaping future policies.
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Evolution of Central Banks: The article delves into the evolution of central banks, emphasizing their critical role in market economies. It raises questions about the need for reform and discusses how central banks have adapted over time.
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Cooperation Among Central Banks: In a global financial system, cooperation among central banks becomes paramount. The article prompts exploration of ways to enhance collaboration and coordination to prevent and mitigate future crises.
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Asset Prices and Credit Growth in Anti-Inflation Policy: The role of asset prices and credit growth in anti-inflation policy is examined. This involves assessing how central banks should consider these factors in their policy decisions to maintain economic stability.
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Central Banks in Banking Supervision: The appropriate role of central banks in banking supervision is discussed. This includes examining the responsibilities and oversight functions central banks should have in ensuring the stability of the banking sector.
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Liquidity Provision by Central Banks: The ways in which central banks provide liquidity to markets are explored. This involves understanding the mechanisms and strategies employed by central banks to maintain liquidity in financial systems.
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Efficiency and Cost-Effectiveness of Central Banks: The efficiency and cost-effectiveness of central banks are raised as important considerations. This could involve evaluating the organizational structures and operational strategies of central banks.
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Issues Facing Emerging Markets and Islamic Finance: Specific challenges faced by emerging markets and the implications of central banking in Islamic finance are addressed. This highlights the diverse range of issues that central banks must navigate.
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Policy Recommendations: The article concludes with policy recommendations, including potential reforms in monetary policy, metrics for financial stability, closer collaboration with regulators, and a focus on international cooperation.
In summary, "Banking on the Future" provides a deep dive into the world of central banking, offering insights from interviews with leading central bankers and incorporating the latest academic research. It challenges existing paradigms and proposes policy changes to strengthen the foundations of central banking in the face of evolving global economic dynamics.
