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Calculation
Calculate the latest coverage ratio.
(Get the latest Balance Sheet of BNM)
Banker and Financial adviser to
government
Provide current account and deposits facilities to
government, state government and statutory bodies;
international institutions
Managing accounts and debt position of government
Administer the Exchange Control Act
Dealing with international bodies like Bank for
International Settlements (BIS) and Basle Committee
of Banking Supervisors
Banker to financial institutions
Provide clearing system of cheques and inter bank
settlements
Provide funding under Export Credit Refinancing
(ECR) Scheme
Accepts deposit from financial institutions for
mandatory Statutory Reserve Requirement (SRR)
Act as ‘lender of last resort’ either direct lending or
through financial instruments such as REPO
Lender of last resort
A role played by an institution that has capacity to lend
to another institution when no one else can (no other
borrowing alternative)
Normally a central bank plays this role
In extreme case, such as in US, the Federal Reserve acts
as lender of last resort to banks that are experiencing
financial difficulty or near collapse in which the failure
to obtain this credit would affect the economy
Discussion: When a bank becomes a borrower of last
resort, what is the indication?
Banking supervision
Supervise operations of all banking institutions to ensure:
- public confidence on the banking system
- banks exercise prudence in their operations
- banks comply with the provision and requirement
Continuously introduces prudential reforms to
strengthen financial system; examples – revision on
guidelines on appointment of directors; on derivatives
trading
‘Moral suasion’ practices – technique of informally
inducing a voluntary response from financial institutions
to its policy initiatives
Monetary policy and sound financial
structure
Regulate supply of money and credit to ensure
adequacy for growth without causing inflation
Ensure a well-organized money and foreign
exchange markets – efficient operations and
settlements
Monetary tools used – (a) direct borrowing and
lending (b) open market operations, (c) selective
credit control and lending guidelines (d) reserve
requirement
Direct borrowing & lending and OMO
Direct borrowing & lending: a straight forward direct
placement of funds/accepting deposits among banks
OMO: involves the buying and selling of government
securities in the open market (BNM buys securities to
inject funds and sells securities to mop up funds in
the system)
These monetary instruments policy will give impact
to the growth of money and credit; thus managing
reserves and liquidity
Statutory Reserve Requirement (SRR)
a BNM’s monetary policy instrument for the purposes
of liquidity management
all commercial banks, investment banks and Islamic
banks are required to maintain balances in their
Statutory Reserve Accounts equivalent to a certain
proportion of their eligible liabilities the statutory
reserve requirement rate
SRR is used to manage liquidity and thus manage
level of credit (credit creation) in the financial system
How is liquidity and credit managed through
SRR?
The SRR is used (a) to withdraw liquidity when the
excess of liquidity in the banking system is large and
long-term in nature
(b) inject liquidity when the lack of liquidity is large
and long term
Withdrawing liquidity is by increasing the SRR rate
Injecting liquidity is by decreasing the SRR rate
SRR, liquidity less fund available for banks
to offer to the customers
(reduce loan)
CAMEL framework
as a form of surveillance on financial institutions
to ensure a healthy and financially strong
institutions
To ensure customers needs are met
To ensure a sound financial system
Components of the framework - Capital adequacy;
Asset quality; Management efficiency; Earnings
performance and Liquidity position
Legislation under BNM
Central Bank of Malaysia Act 2009
Financial Services Act 2013
Islamic Financial Services Act 2013
Insurance Act 1996
Development Financial Institutions Act 2002
Anti-Money Laundering, Anti-Terrorism Financing
and Proceeds of Unlawful Act 2001
Money Services Business Act 2011