Government Role in Promoting Financial Stability

There are many ways that the Government can contribute to the stability of financial markets. The Federal Reserve, the Treasury, and other international partners are among the agencies that can be utilized to create financial security for America. However, there are several factors to consider when determining whether or not a government is the best option for a particular situation.

Federal Reserve

The Federal Reserve plays a critical role in promoting financial stability. A stable banking system allows for businesses to expand and hire new workers. It also helps consumers feel secure in their savings. However, the Fed’s role in ensuring stability is often a topic of contention between lawmakers and the Fed itself.

During the recent financial crisis, Congress introduced the Dodd-Frank Act. Despite some debate about how the Act would be implemented, the near-final version of the legislation required the Board of Governors to identify and assess risks to financial stability.

The Financial Stability Oversight Council (FSOC) was created under the Dodd-Frank Act and continues to serve as a central venue for member agencies to coordinate responses to emerging threats. In addition to providing a forum for policy coordination, the FSOC promotes market discipline.

Norges Bank

In Norway, the central bank has played an important role in promoting financial stability. In the wake of the global financial crisis, Norway was a leading country in the implementation of Basel III requirements. After the crisis, the government responded quickly to the pressures on banks. As a result, the economy recovered relatively well.

Norges Bank plays an important role in the payment system, assessing the risks in the securities market and promoting an efficient payment system. In addition, the bank is also the ultimate settlement bank for interbank payments. Its responsibilities are set out in the Payment Systems Act.

In the recent past, the Bank has taken a broad range of macroprudential measures. In particular, it played an explicit role in setting the countercyclical capital buffer rate. Since 2015, the Norwegian authorities have enacted a range of microprudential and macroprudential policies.

Treasury

The Treasury plays a key role in the financial stability of the United States. The department executes billions of transactions annually. As a result, it is crucial that these transactions be safe and reliable.

One of the most critical challenges facing the Treasury is technology. Treasury is working to address the issue by expanding shared information technology platforms, increasing the use of strategic sourcing, and more.

Another important component of a Treasury’s role is to promote data-driven decision making and evidence-based policymaking. Treasury encourages these practices in order to promote efficiency and increase the effectiveness of the government.

A third area of treasury is its work in the international arena. Through its Office of Technical Assistance, the Department works with developing countries to promote financial and economic reforms.

Influence on markets

In recent years, government’s role in promoting financial stability has become an important topic of debate. While no one has yet come up with an exact definition of “financial stability,” certain laws and regulations do give specific federal agencies the power to make financial decisions, particularly in times of instability.

The government is also involved in a number of other areas, including promoting innovation, protecting consumers, negotiating trade agreements, and regulating markets. As such, the size of the government today is much larger than it was in the days of Adam Smith.

One example of this is the creation of the internet. This is a technological feat that would not have been possible without government intervention. A key factor in the success of the internet was the government’s ability to auction large bands of radio frequencies.

Simplifying the tax code

Many of the US citizens have cried out for further simplification of the tax code. Simplifying the tax code would reduce the compliance burden on taxpayers and increase tax revenues.

Among the most common taxes are state and local taxes, sales taxes, and property taxes. Each has its own benefits. Among these, the sales tax is the most distortionary.

Some countries, such as Russia, have successfully implemented a tax system that has simplified the tax administration. Moreover, Russian tax revenues have been buoyed by a strong economy.

The Tax Reform Act of 1986 was a landmark law that made the tax system more uniform and simplified many of the existing tax brackets and phase-outs. This legislation also limited a large number of tax deductions.

International partners

If the European Union is to stay competitive in an increasingly globalized world, it needs to make good use of its network of international partners. This includes not only the more familiar BRICS nations, but also nontraditional development partners, like the private sector and international development agencies. The EU and its Member States have forged a number of nifty alliances in the past few years, and are now working together to deliver greater transformative impact.

In the sphere of financial stability, the Partners for Financial Stability Program (PFSP) is an interesting example. The program provides a mechanism for regional players from partner countries to exchange lessons learned and best practices. It also helps to promote the adoption of international best practices.