Running head: CENTRAL BANK ANALYSIS
Central Bank Analysis
Brendon Cronin
Southern New Hampshire University
1/28/20
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CENTRAL BANK ANALYSIS
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Central Bank Analysis
Introduction
Canada was sparsely settled and mainly rural before the great depression of 1930. At that
time, there was no need for a central bank in the nation since the existing finance system was
dependent on preference on a few banks with several branches. The existing branch bank
network was adequate in meeting the country’s financial needs as they provided currency in
circulation to meet even seasonal and unexpected demand. Well-established banks could
comfortably handle the businesses of the government. The existing networks also developed
systems for check clearance amongst banks. The financial issues associated with the great
depression necessitated a change in the Canadian banking environment. The country’s prime
minister at the time also raised concerns that the country could not settle global accounts. A royal
commission was thus set up in 1933 to weigh in on the issue and determine whether it was
necessary to create a centralized banking system. The proponents for the creation of the
Canadian central banking system won, leading to the establishment of the Central Bank of
Canada and its opening in 1935. The bank became a crown corporation belonging to the federal
government in 1938. The banks exist for the sole purpose of regulating financial transactions to
meet the financial needs of the Canadian population and the economic life of the people.
Financial Structure
The central bank of Canada plays a critical role in enhancing stability and efficiency in
the country’s financial system for sustained growth in the economy of the country as well as
raising the standards of living. The Bank of Canada encourages financial and economic well
being among Canadians through the promotion of an established and well-organized financial
system. The bank oversees the operations of financial institutions in the country, such as
CENTRAL BANK ANALYSIS
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financial markets, credit unions, as well as clearing and settlement systems. The bank offers
liquidity and lender of last resort facilities, oversees the operations of financial market
infrastructure, and helps in the development and implementation of economic policies in the
country (Lombardi & Schembri, 2016). The bank of Canada is, therefore, an independent entity
responsible for regulating the operations of various financial institutions for enhanced economic
growth and welfare of the citizens.
The financial structure if the Federal Reserve Bank plays a critical role in the regulation
of various financial institutions in the country. The section provides the board with analysis and
information regarding emerging developments affecting the current structure of the United States
banking system. The Federal bank is responsible for conducting research in the sectors of the
industrial organization as well as financial economics and consequently develops critical data
sets regarding finances. The bank is responsible for promoting the stability of the country’s
financial system by minimizing and containing systematic risks by actively monitoring and
engagement in economic systems in the United States and abroad. The bank also promotes the
soundness and safety of the financial systems and institutions through active monitoring of the
impact of such institutions on the financial system.
Financial Intermediation
The concept involves the process adopted by banks involving deposit-taking and lending
money to borrowers. Overall, the financial system is dependent on financial intermediation,
supporting the lending out of money at higher rates of interest while receiving deposits at
relatively lower rates (Woodford, 2010). The central bank of Canada operates as an independent
arm of the government. The institution is responsible for maintaining the country’s monetary
CENTRAL BANK ANALYSIS
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policy. Financial intermediation occurs when the bank acts as a lender of last resort to chartered
banks. The bank of Canada holds deposits of both the government and chartered banks.
The Federal Reserve Bank acts as a financial intermediary based on its capacity to accept
deposits and lend money to the government and other financial institutions. The Federal Reserve
Bank receives deposits from financial institutions and banks through the need for depositing
reserves with the federal bank. The bank adjusts reserve rates based on the need for regulating
the money in circulation. The bank also offers credit to commercial banks and act as a lender of
last resort to the government (Broz, 2015). This, therefore, shows that the Federal Reserve Bank
is involved in the financial intermediation process.
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References
Broz, L. (2015). The Federal Reserve as global lender of last resort, 2007-2010.
Lombardi, D., & Schembri, L. L. (2016). Reinventing the role of central banks in financial
stability. Bank of Canada Review, 2016(Autumn), 1-11.
Woodford, M. (2010). Financial intermediation and macroeconomic analysis. Journal of
Economic Perspectives, 24(4), 21-44.
ECO 306 Milestone Two Guidelines and Rubric
Overview: In Final Project II, you will write an informative research paper comparing and contrasting the structure and operation of the central bank of the
United States—the Federal Reserve—and the central bank of another country, chosen from the provided list. For this milestone, analyze and write about the
central banking and monetary policies of the foreign central bank, selected in Milestone One, as well as the U.S. Federal Reserve.
Prompt: Use the foreign central bank you selected in Milestone One and analyze both the current macroeconomic conditions in the foreign country and those in
the United States. Compare the performance of the selected foreign central bank with the U.S. Federal Reserve. Also, analyze the monetary policies of the
selected foreign central bank and the U.S. Federal Reserve, including the primary tools used to control the money supply, the impact of the use of the tools on
macroeconomic performance, and banking regulations of each central bank.
Specifically, the following critical elements must be addressed:
II.
Central Banking: Explain the current macroeconomic conditions (unemployment, inflation, and economic growth [GDP] rates) that the Federal Reserve
and the central bank you have chosen observe in each country, and compare the performance between the two countries.
III.
Monetary Policy
A. Explain the primary tools used by the central bank and the Federal Reserve to control the money supply in each country.
i.
Note the example from the Bank of Canada website where you can find primary tools information:
Bank of Canada website ? Core Functions ? Monetary Policies. Other central bank websites will likely be similar.
B. Describe how each monetary authority uses these tools to impact macroeconomic performance.
C. Compare banking regulations of the central bank you have chosen and the Federal Reserve.
Rubric
Guidelines for Submission: Your paper must be submitted as a 3- to 4-page Microsoft Word document with double spacing, 12-point Times New Roman font,
one-inch margins, and at least four sources cited in APA format.
Critical Elements
Central Banking
Proficient (100%)
Explains the current macroeconomic
conditions in each country and
compares performance of the two
countries
Monetary Policy:
Primary Tools
Explains the primary tools used by the
central bank and the Federal Reserve to
Needs Improvement (80%)
Explains the current macroeconomic
conditions in each country and
compares performance of the two
countries, but explanation contains gaps
or comparison is cursory
Explains the primary tools used by the
central bank and the Federal Reserve to
control the money supply in each
Not Evident (0%)
Does not explain the current
macroeconomic conditions in each
country or compare performance of the
two countries
Value
22
Does not explain the primary tools used
by the central bank and the Federal
22
Monetary Policy:
Impact
Monetary Policy:
Regulations
Articulation of
Response
control the money supply in each
country
Describes how each monetary authority
uses its primary tools to impact
macroeconomic performance
Compares banking regulations of the
central bank and the Federal Reserve
Submission has no major errors related
to citations, grammar, spelling, syntax,
or organization
country, but explanation is missing
components or illogical
Describes how each monetary authority
uses its primary tools to impact
macroeconomic performance, but
description is incomplete or contains
inaccuracies
Compares banking regulations of the
central bank and the Federal Reserve,
but comparison is cursory or contains
inaccuracies
Submission has major errors related to
citations, grammar, spelling, syntax, or
organization that negatively impact
readability and articulation of main ideas
Reserve to control the money supply in
each country
Does not describe how each monetary
authority uses its primary tools to
impact macroeconomic performance
22
Does not compare banking regulations
of the central bank and the Federal
Reserve
22
Submission has critical errors related to
citations, grammar, spelling, syntax, or
organization that prevent understanding
of ideas
Total
12
100%

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