The availability of finances

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Introduction

Development of the economy is dependent on the availability and access to finances. The availability of finances is affected by the financial system. The financial system heavily relies on the market and whenever the market forces change, the financial system is affected Hawkins (2005, p. 65). Financial institutions give loans to fund economic institutions.

In the recent past, there has been a change in the global economic market that has changed the market. As a result many economies have been able to change strategy and restructure to be able to realize their goals. The financial system is not an exemption and thus it is subject to change. The financial system must continue to offer credit and continue giving services without major disturbances (Sheng2010).

The financial institutions must function effectively and efficiently so that the financial system remains stable. Johnston and Abbott (2005) note besides being effective the financial system must adapt to measures that will enable them be stable and provide finances. This paper will discuss the measures that are required to safeguard the stability of the financial system and ensure wider access to finance.

The instability in the financial system and lack of access to finance

Ingves (2008 Para 4) argues that financial instability began in the market. Using the example on the United States, the interest rates given on mortgage increased.

The borrowers were unable to pay the credit hence the financial institutions suffered losses. This was partly due to the fact that the prices of the houses had reduced and later, the prices were increased. to respond to this challenge, the banks introduced security on the product. They turned to liquidation of property.

Hawkins (2005, p. 67) argues that the market and the structure of the financial institution contributes to the financial stability of a financial institution. When the market and other economic institutions are failing the financial system is disabled.

It interferes with the speed of transactions and slows down the economic development. Lack of financial availability cripples development. Many growing medium institutions have limited transactions and therefore the system slowly becomes stagnated and eventually become unstable.

In his speech Papademos (2009) noted that the financial system has suffered form crisis that are emanate from the changing economic environment. This crisis has caused some financial institutions to liquidation of assets, using collateral and the use of policies that make policies to do with money civil. The state has also intervened by giving the financial institution relief on capital and assistance in paying debts (Para 9).

Measures that have been used to stabilize the financial system have been successful. Papademos (2009 Para 12) says that the improvement is minimal and that some states have not recovered. The ill financial system in this states will affect the economy negatively which may last for a long period of time.

Measures are required to safeguard the stability of the financial system and ensure wider access to finance

Establishing standards

The financial system does not exist in isolation. It is affected by the market forces and other financial institutions. Due to globalization, the financial activities within borders have implications in other countries because most financial institutions have engaged in international relations. Thus banks have relations with other banks in other states Hansard (2008, p. 4).

Accordingly, Johnston and Abbott (2005 p. 3) identify setting of standards as an evitable process in the world economy. The standards will involve identifying regulations and competent accounting system that is transparent.

Those dealing with employees must be professionals who are competent and demonstrate integrity. They must follow procedures and be timely in providing reports. Furthermore, they should be able to account for any transactions and be able to give statements on demand from authorities (Clarke, Cull, and Martinez, 2001 p. 45). The auditor as well as accountants must belong to a professional body. Professional bodies keep up to date any changes concerning practice and also providing examination that test on competence. Furthermore, they encourage professionalism (Johnston and Abbott 2005 p. 3).

A financial system is expected to have a practicing lawyer who is conversant with the activities that the financial system is concerned with. Kane (2004) points out that the financial institutions need legal advice before entering into any major financial deals. It should also have access to a judge who is moral and effective. Both of them must work within the acceptable work ethics.

The financial management must demonstrate integrity. All transactions must be made without strings attached and be accounted for. Mismanagement is not acceptable as it may lead to the collapse of the company. The management must have a vision and objectives that guide the activities of the institution.

Johnston and Abbott (2005) emphasize that the financial system should have its own form of control within the institution. The duties of all employees must be clearly outlined and that there should be no overlapping tasks. They should work with minimal supervision from the management.

The management should also work to be independent of external interferences. This is because whenever a financial system is performing poorly, the government may exercise some control in the management. This may interfere with the plans made by the company (p. 3).

A successful financial system will have the required skills for risk management as Johnston and Abbott (2005 p. 3) state. It consults professionals to assist in relevant areas. It makes it a routine to reveal it successes and exercise transparency towards the investors.

Thus it keeps record of audit and utilizes accounting principles. It also embraces a code of ethics that discourage corruption and provides channels where misconduct can be reported.

Activities that lead to financial instability must be criminalized in line with Johnston and Abbott (2005 p. 7). Mismanagement that is associated with fraud must be put to book. To attain this, the courts must exercise integrity. Punitive measures must be designed and adopted. Implementation will reduce such cases.

Fraud in the financial system leads to collapse of the institution hence access to finances is made impossible. Impunity should not be tolerated and thus an institution can be set up so that all disciplinary cases can be reported and dealt be with.

Control bodies

Financial instability has not been a pleasant experience for the financial institutions, the public and the government. Among the measures that have been adopted is the establishment of special bodies to deal with financial problems. The Central Bank of Malta (2004 Para 10) indicates that the bank created and mandated a body within the bank to conduct investigations on behalf of the bank.

The research was going to help the bank avoid any risks that may be encountered in case they went ahead with a product. The body was involved in extensive investigations that predicated the progress and possible risks in sectors that are related to the financial system. Additionally, the banks welcomed international transaction. The banks allowed payment of salaries from international banks and processed the salary.

The European region also has a regulatory body. The body is well established owing to the fact that a majority of its members are developed. The body has well defined regulations and understanding in case of financial instability. What is more, there is more advanced supervision and thus institution are kept on watch. Due to this form of arrangement, a majority of originations and individuals have access to finances and can develop.

The Central Bank of Malta (2004 Para 22) observes that this is not the case in other parts of the world. In some cases, the institutions vary in structure and procedure. Other countries are less development hence they may be reluctant to join. They vary in practice just as their clients vary in terms of financial needs.

However, they may be required to form agreements because the financial system in other countries affects the others. This is as a result of globalization. The financial system has formed a network where they assist each other and thus encourage much greater cooperation.

Policies that have been adopted across borders lead to importation and exportation of new ideas from the international cooperation. Consequently the financial system is likely to adopt measures that will lead to development and enable the economy to develop.

The ideas are applied depending on unique situation and the level of applicability. Falkena (2004) reveals that the international associations have at times led to stability. They have assisted each other by providing credit facilities and making the requirements to be less strict.

Control on Inflation

The state can use price controls to ensure that the financial system gains stability. Papademos (2009 Para14) mentions that the minimal inflation of commodities becomes favorable to an economy. The costs of basic commodities become lower just as the prices of energy remain low. When the economy deteriorates, there are few economic activities and thus the costs of utilities may fall down.

Inflation of basic commodities may have implications on the employee’s labor wages. Employees may demand for increase of salary. Therefore, for the financial system to remain stable inflation of basic commodities must be discouraged.

Encouraging economic growth

A low GDP is not a good sign of the financial system. It indicates that economic activities have deteriorated. Papademos (2009 Para 17) says that even the number of private business owners taking loans has reduced. As a result the state may end up being the major provider of utilities.

For economic growth to be realized, the financial system may provide credit to individuals with fewer conditions. This will encourage private businesses to be established and to grow. The financial institutions can give credit will minimal interest rates to encourage private investors.

Monetary measures

Papademos (2009 Para 20) points out that monetary policy are essential in bringing financial stability. For instance the European Central Bank (ECB) has adopted a policy which maintains that liquidation of assets is not part of monetary policy.

The interest rates that have been lowered seem to make the public and shareholders as well as possible investors gain confidence with the financial system. Liquidation of property has benefited the financial system from experiencing losses.

There are concerns that arise from strict conditions that financial institutions use before allowing client get loans. Ingves and Berengaut (2004) indicate that such conditions may call for the states intervention so that finances become available. Availability of finances will enable quick economic recovery.

Monetary policies are an important ingredient that supports all the other measures in the financial system. The UN General Assembly (2010) insists that monetary policies be included because they provide preventive measures against crisis.

Government interventions

Papademos (2009 Para 31) notes that the government can intervene by giving capital to banks that are experiencing financial crisis. It can do so by controlling the prices of basic commodities as mentioned above. Additionally, they have been required to follow states directive to belong to an insurance scheme.

The scheme is supposed to meet the unique needs of the financial institution and assist it remain stable as well as be able to give loans. The insurance cover should not limit the institutions from participating in the global market.

This is because it exists to make the institution maximize on the benefits. The insurance should not be a hindrance for the bank to make finances available. Moreover,. It should work within the acceptable moral standards of the state.

The state has a responsibility of protecting its citizens as (Ingves 2008 Para 26) points out. The state has put up measure concerning the administration of the financial institutions. It has come been involved in protecting citizens who have invested in the banks. This is because when the banks collapse and the investors lose.

Major companies may close down and make a large number of employees jobless. For this reason the state assumes that it has a responsibility of arbitrating in financial institutions experiencing crisis.

The G20 Seoul Summit Leaders’ Declaration (2010) states that the there is need for supervision of financial institution. They emphasize that the institutions must be responsible of own actions. The institutions must be able to repay any due to its customers should it choose to close down.

Banks at the verge of falling must declare the situations. This is because the risks that the banks take and evantualy turnto loses are not the responsibility of the clients. Thus the losses made by the financial institutions must not be extending to the customers.

Fiscal policy

The UN General Assembly (2010) proposed that fiscal policies be adopted as other policies alone need such support. The main purposes are to reduce the imbalance that may have been created by the financial instability. Furthermore, the financial institutions may not be able to make finances available without the support of the government in difficult times.

The state while making the national budget should consider supporting the avenues that development oriented. Different states have different needs depending on resources they have and the level of development. Besides being diverse, the budget should give support to areas that are vital to economic development.

It can also give support to areas that enable the financial system to be stable. Revenue collected from the citizens should be used effectively to provide reliable services. The public finances must be accounted for and thus clear goals must be set (Papademos, 2009 Para 37).

The financial system

Papademos (2009 Para 39) identifies that the structure of financial institutions may require restructuring so that it can become stable. The management might need to change its procedures so that it functions effectively in the dynamic financial environment. Since the economy is not easily predictable the financial system should adopt prevention regulations as well as be prepared to effectively handle unexpected crisis.

Measures related to assets as highlighted by Papademos (2009 Para 40). The financial institutions have embraces exclusion of assets from the financial statements of the banks. Some have been sold to the state and in other cases the ownership is transferred.

TEXT-UK Treasury statement on the banking industry (2008) indicated that the United Kingdom government was willing to provide support by adopting measures that brought relieve to the clients and the financial system. Besides offering additional capital to the banks, the UK government in 2000 was going to assist the institutions to lend despite the competition posed in the market.

The government was going to support citizen who had already entered in to a mortgage to pay and remain in their residents. The government was also going to be involved in the process of appointing the executives. Besides being involved in the management, the government cut down on the bonus pay of the top management so that the revenue was used an initiative.

Use of security

To deal with risk, financial institutions have developed strategy that is designed for the different institutions depending on their circumstances. Bans have invested in properties that are likely to give large amounts of profit over a long period of time. In addition, they have used certificates on short duration loans.

In some cases, the banks have had to protect its name when such strategies fail to become successful. Thus the strategy must be carefully thought to avoid further instability. Consequently, the financial institutions are forced to move to another strategy and find a way to stay afloat.

The financial institutions have made use of credit rating institutions. According to Ingves (2008 Para 11) institutions investigate whether a product is likely to be sustainable. The investors have also used these credit rating institutions to predict the outcome of a product. These institutions have been successful in gaining trust from the investors.

This is because they are informed of all available products and have studied them adequately. Furthermore, the credit rating institutions have been able to provide a wide category and classification of assets. Ingves (2008 Para 13) explains that, the institutions rarely give a clear explanation of the stage at which a certain product may become a burden. Therefore, the investor may not be aware of the risks that they may encounter.

Increased cooperation with the international financial institutions

Economic activities are gradually becoming international. Ingves (2008 Para 61) mentions that there are increased transactions between local and international banks as well as other financial institutions in other countries. Financial activities in other countries affect local financial activities.

Banks own property in foreign states. Other banks have bought shares abroad and make huge profits from such investments. Due to such investments beyond borders, the financial institutions engage in tight competition locally by availing finances to the local organizations and individuals. Consequently, the financial system becomes stable and finances are made available.

There has been increased advertisement of properties for sale across borders and thus many investors have acquired property in other states. This has increased the opportunities for economic growth. Moreover, many have benefited from cross border relations among them being cheap labor and increased investments. Banks have also raised their standard to merge with the international standards.

However, Ingves (2008 Para 65) indicates that a financial difficulty in a specific country will affect other countries that have international cooperation. The situation may become much worse if several states enter into financial turmoil at the same time. The presence of an international body would be of help in such a situation.

Another challenge foreseen with the cross border relations is the challenge of curbing crisis in multiple states. This is because different states may advocate for diverse strategies of dealing with the problem. Furthermore, the states have own interest in the market that can be conflicting.

State official may differ in approach, coordination and may deliberately fail to collaborate efforts that require sharing of information. As a result decision making may take lack adequate information and may end up taking a long period to recover from the crisis Ingves (2008 Para 67)

To avoid situations where financial turmoil may take an extensive period time for lack of consensus Ingves (2008 Para 69) argues that the interstate relations can be guided by laid down agreements. Before entering any international financial cooperation, the states can enter into an agreement that defines what is to be done in case there are shortcomings.

Benefits of measures to safeguard the stability of the financial system and ensure wider access to finance

Measure to stabilize the financial system will lead to the growth of economy where business transactions will be increased. For this reason many investors will be confident to venture into economic activities. Furthermore, people are likely to withstand to the dynamic economic since the financial system is quick to adopt to change (Papademos 2009, Para 24).

The ECB adopts policies that are below standards as Papademos (2009 Para 25) identifies. Depending on the nature of crisis, measures are taken to facilitate stability in the market. Constrains that are experienced are alleviated making it possible for economic transactions. The measures may be to do with reduced interest rates or management decisions on financial procedures.

Control on inflation leads to stability of prices in the market. Whenever the prices are stable the consumers, investors and financial institutions have confidence. Individuals are encouraged to borrow from the financial institutions and without fear of great risk. Consequently, there is financial stability and economic development.

Ingves (2008 Para 23) notes that stability and availability of finances make it possible for organizations and individuals to raise capital. Getting capital can be challenging because to set up an organization require huge amounts of money. When such funding is enabled, businesses can grow and create other avenues for development. The result will be a contributor to financial stability.

Financial stability leads to more convenient and reliable methods of paying credit. When the bank makes it possible for people to access funds and to be able to pay for expenses more easily it results to massive transactions. These transactions are an indicator of increased economic activities hence reveal that there is stability (Ingves 2008, Para 24).

Recommendations

The financial institution can develop a crisis management tactic. According to Ingves (2008 Para 80) the financial institutions can keep check and be able to predict a forthcoming crisis. If the crisis is experienced, they should develop a culture of handling crisis within the least time possible.

The financial institutions can also consult experts and welcome recommendations. The banks must adopt a culture of transparency and accountability to its clients. By doing so it must ensure that there is efficiency and effectiveness in the availability of credit.

The financial institutions should welcome states regulatory mechanism. The state main interest is to protect the citizens including the banking system. Moreover, it has a responsibly from the tax payers and thus the state may be forced to take actions against mismanagement.

The financial system will fail if legislative measures are not put to task. Implementing stipulated laws will benefit the investors and the financial institutions. The legislations are vital in the international level. If well administered countries will resolve arguments will little friction. The legislations are important because of conflicting national interest.

Sheng (2010) discusses the measures that financial institutions in Malaysia took in pursuit of financial stability. The professionals advised the financial institutions against concentrating their investment on a particular area. In most cases, most had concentrated on development of commercial housing both residential and office.

This was a predicament that the global crisis in other parts of the world might spread and cause instability. As a result the banks embraced the advice and made changes within the organization.

Among the measures put into use included the lowering of the capital requirement. The ownership of the bank was increased by selling some shares to the public. In terms of administration, the employees who were not willing to follow procedures and entered into misconduct were questioned.

Furthermore, there was supervision which took note of the performance of the loans awarded. If the institution awarded the loan was realized to be not performed some suctions were administered. Thus the financial institution inevitably adopted goals that would lead to profit making and hence stability of the bank (Shinasi, 2005).

Conclusion

Availability of finance is possible if the financial system is functioning smoothly. Failure to offer finances will lead to economic stagnation and underdevelopment. Financial instability lead to constrains among the members of the society. The government, the central bank as well as other financial institution provide capital to enable economic growth (Ingves 2008, Para 2).

The measures that have been used to provide stability of the financial system include: establishing standards within the financial institutions. Control bodies have been established where they can be consulted by the public the financial system. There have been measures that are established to control inflation of basic commodities. Measures that encourage economic growth and access to finances are adopted.

They include low interest rates for credit. Monetary policies and fiscal have been used to foster support to the existing measures. Consequently the financial system has been strengthening through adoption of good management of the financial system.

Another measure has been established to ensure that there is security for the money. Cooperation with the international financial institutions is another measure that has been used to make the financial system stable.

There are benefits associated with a stable financial system which include access and availability of finances. Finances lead to development and economic growth.

References List

Clarke, G., Cull, R. and Martinez, P. (2001). Does foreign bank penetration reduce access to credit in developing countries? Washington: World Bank.

Falkena, H. B. (2004). The Access and Stability objectives of regulation. Workshop on tiered banking legislation at the South African Reserve Bank Conference Centre, Pretoria.

Hansard , L. (2008). Daily Hansard. Web.

Hawkins, P. (2005). Financial access and financial stability. Web.

Ingves, G. S. (2008). Can the authorities manage crises in the financial system? Web.

Ingves, S. and Berengaut, J. (2004). Financial System Stability Assessment. Algeria: IMF

Johnston, R. Barry and Abbott, J. (2005). Deterring Abuse of the Financial System: Elements of an Emerging International Integrity Standard, IMF Policy Discussion Paper, PDP/05/3. Web.

Kane, E. J. (2004). Financial Regulation and Bank Safety Nets. Boston: Boston College.

Papademos, L. (2009). Tackling the financial crisis: policies for stability and recovery. Web.

Sheng, Andrew (2010) Developments in the Malaysian Financial Systems. Web.

Shinasi, G. (2005). Preserving financial stability. IMF: Economic Issues, 36.

TEXT-UK Treasury statement on the banking industry. (2008). The UK Treasury on support for the banking industry. Web.

The Central Bank of Malta. (2004). The Central Bank of Malta and Financial Stability. Web.

The G20 Seoul Summit Leaders’ Declaration. (2010). THE G20 Seoul Summit. Web.

UN General Assembly. (2010). Call Sounded for Mechanism to Ensure Debt Sustainability, as Second Committee Department of Public Information , News and Media Division. New York: GA/EF/3282. Web.

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