INTELLECTUAL ECONOMICS 2007, Number 2(2)
REVIEWSINTELLECTUAL INNOVATIONS IN MONETARY POLICY: THREE BOOKS ONE DIRECTION
Mykolas Romeris University Publishing Centre. Vilnius. Lithuania 2007 Nr.2(2), p. 73-76
The economy of modern Europe is not any more the sum of economies
of separate states, but the tightly integrated economic unit.
The replacement of a multi-currency system by a single currency on
the basis of the European economic and monetary unit is the stage in
the same integration and convergence process; monetary policy that
recently was the matter of each state was handed over to the European
Central Bank. A voluntary rejection of monetary national independence
and transition to the consolidated European level is a unique
phenomenon in the history of the cooperation of the states. All these
problems together with sophisticated innovations in banking technologies
are discussed in the books of professor Vytautas Vaskelaitis.
The resolution of the European states to have a common currency
is based primarily on the economic considerations. After the
creation of the common market in Europe, aims exist to make a better
use of its advantages and for this purpose a common currency and
monetary policy was needed in order to ensure the higher stability of
the monetary system of the European Union Members States and to
increase the importance of Europe for the world economy.
The undoubted advantages of the monographs “Money: Monetary
Policy and Measures” and “Money: Central Banks and their Functions”
are as follows: the monographs analyze relevant and important
topic that definitely will be interesting for both academic society
readers and practitioners. A comprehensive and wide conception of
money, monetary policy, central banks activity and its development
is presented; many new scientific findings, interesting and valued recommendations
in theoretical and practical point are revealed. These
monographs can be recommended for a wide range of readers especially
for academics that work in economic studies as well as for students
that are specialized in different monetary and financial studies
and some practitioners that work in different financial and banking
sectors.
The main topics of monetary policy, its measures and central
banks activity are analyzed very widely and integrated. This analysis
is oriented to actualities of monetary policy and central banks activity.
Implementing systemic point of view the author presents all
main circumstances that are essential to understand in order to solve
actual monetary policy and central banks problems. In the context
of international proceedings the actualities of monetary policy
and central banks activity in Lithuania are widely discussed. The
author presents a comparative analysis of experience in international
practice, integrates the analysis of monetary policy and central
banks activity and expansion of Euro zone, also economic internationalization.
Important is the fact that author widely analyses the
trends of money and monetary policy in the spread of information
technology emphasizing the importance of e-money and possibilities
of their development. The author gives attention to the macroand
micro-functions of central banks, monetary policy and banks
activity considering the circumstances of shadow economics.
Finally, not only positive, but also negative properties of
membership in the Economic and Monetary Unit are discussed,
response to such questions are searched for, like those: how the
Economic and Monetary Union and its main dimensions will be
affected by new Member States, with a high difference of income
and productivity (efficiency) of transitional asymmetric type, as
compared to the older Member States? What does such membership
mean for new candidates themselves? May the Economic and
Monetary Unit collapse and what would be consequences thereof?
By what power of the national Central Bank are they restricted
under the conditions of monetary policy to eliminate the asymmetries
of the economic cycle and production apparatus? Would
the national bank be able to interfere into the “bubble“ economy,
to suspend and destroy (by regulating the money supply and shortterm
interest rates) the “bubble“ of prices in separate sectors of the
national economy (this, for example, in Lithuania becomes still
more enforced in the real estate, primarily, the land and housing
market).
In the past years, liberalization of financial markets and capital
concentration have been increasing, therefore they will become
interlinked; it will be still more difficult to separate and specify the
activities of various financial institutions (those of banks, insurance,
and securities) and their functions. This encourages a search
for the most proper supervision model. Both models of supervision
of financial institutions, the specialized one and the general
model of joining the operating supervision services into one, have
their advantages and disadvantages, even though it seems that the
integrated supervision would better comply with the contemporary
tendencies in the development of financial markets.
Upon the creation of the Economic and Monetary Union, part
of the functions of the central banks of the member states lost their
previous importance (for example, the need for the foreign reserves
became reduced, since a major part of foreign trade of the countries
is domestic) and part of the functions remained at a national
level (for example, the responsibility of systemic supervisions of
financial institutions and banks).
Thus, in editing this book, attempts were made to cover the
many-sided monetary policy of present times, to generalize and
initiate the newest experiences, contradictory evaluations and forecasts.
The author striving was not to get lost in the flow of knowledge
under formation and to put forwards what is essential.
The monographs “Money: Monetary Policy and
Measures” and “Money: Central Banks and their
Functions” of professor hab. dr. Vytautas Vaškelaitis
attracted substantial attention in Lithuania.
Head of Department of International Economics and Business Management,
Faculty of Business Management,
Vilnius Gediminas Technical University
Even though risk is very undesirable, it is unavoidable
in the banking operation. In addition, a
direct connection exists between the profitability
sought and risk undertaken, i.e. seeking to achieve
higher profitability, the bank must undertake higher
risk. In other words, the more risk the bank undertakes,
the more opportunities it has to raise higher
profits. And if the bank wants to function by undertaking
minimum risk, it cannot expect higher profits.
Therefore each bank, in dependence on its “appetite”
must “devour” a certain portion of risk.
The understanding that banking business, in the
essence, is the bank risk management business forms
the necessity of the permanent activity of business
risk management, involving all bank divisions. In order
to ensure the purposeful and coordinated activity,
it is necessary by all means to formalize a risk management
policy and to create a strategy. That way the
bank may foresee and avoid the events unfavorable
to the bank, not just mitigate their consequences.
Theoretically, a system approach to the bank
risk management, in the essence, is understood as
such, but practically various problems occur as regards
the implementation of this approach. In fact, a
risk management process should be based on reliable
decision-making and implementation procedures,
the comprehensive internal control and adequate
information technologies (as we know, software is
attributed to expensive resources). Practical implementation
of the approach is impossible without qualified
specialists – risk managers (such specialists
are very few in number). Due to the said reasons,
banks (especially, small ones) quite often are forced
to doubt, whether it is worthwhile to implement that
approach, whether input will not exceed benefit.
The topics of performance analysis and management
of commercial banks are seldom analyzed
in Lithuanian publications. At this point of view
the monographs of professor Vytautas Vaškelaitis is
essential for both practitioners in banking and high
schools students that are specialized in economics
studies.
The author analyses the beginning of commercial
banking, trends and potentials of modern banking.
The attention of readers should be attracted to the
suggested problem of banking system vulnerability.
In the period of the reestablishment of an independent
Lithuania, quite a number of banks went
bankrupt. All that resulted from the disability of
banks to manage their property and fulfill the undertaken
balance and non-balance liabilities. And it
could be hardly explained and justified by the insufficient
experience of bank activity or macroeconomic
problems.
The improper legislation, low requirements in
respect of the authorized capital created opportunities
for banks to establish themselves easily and to
carry out the risky operation under hyperinflation
conditions. This gave rise to the abundant and sudden
emergence of banks (especially small ones).
The author investigates the banking risk types
and presents both traditional and new methods and
tools for risk management.
A separate bank in its operation process faces
the totality of risks of different types (each bank
operates under different conditions), and the same
risk exerts to risk a different effect on a bank. Quite
recently, the opinion prevailed that bank risk consists
of credit risk and market risk types, the former
of which is controlled by the bank, and the latter is
without any control, and therefore it is impossible to
eliminate either the risk itself or the losses caused
due it. Today we already perceive that banks can successfully
control the greater part of risk related to its
operation, if they are able to identify the sources of
risk. The author also gives attention to the analysis
of banks balance sheets and presents the formulas
calculating relative indexes.
The research of banks supervision presented in
this monographs has practical value. The experience
of banks supervision in foreign countries and possibilities
of this experience adaptation in Lithuania are
analyzed.
These monographs of professor Vytautas Vaškelaitis
analyzing the core topics of commercial banks
supervision and risk management draw special attention
and wide discussions.
In most countries the national central bank effects
control of the entire system of the bank. The
central bank at the same time operates as the last
liquidity source in the procedure prescribed by laws.
The identification of supervision rules and normatives
as well as their fulfillment control belong to its
powers. The bank system should function within this
stable and legal framework. Such framework is needed,
since all credit institutions, in the essence, are
interacting, and the collapse of any of them would
predetermine the worsening financial position of the
institution. Therefore, it would be possible to state
that external regulation has a great effect on the risk
management system of banks.
In writing this book, the author used numerous
legal-normative acts, references, and the experience
of concrete banks. This makes it possible to expect
that the work will not seem to be superficial. Also we
assure that the readers of this book will supplement
and reinforce their knowledge in the field this book
deals with.
Vilnius University