"History demonstrates conclusively that a modern economy cannot grow if its financial system is not operating effectively." said Ben Bernanke, Federal Reserve chairman, last week at London. It sounds obvious, but it is also fundamental and for three reasons. First, banks allow people to pay each other easily without them commerce would be severely impeded. And second, along with the wider financial system, they act as vital intermediaries allowing credit to flow from savers to borrowers with viable ventures. The third strut is potentially the shakiest by their nature of lending for long periods but borrowing short, banks rely on confidence for their existence; fear or disruption in one part of the financial system can spread like a virus and bring it crashing down.
But for all the importance of the financial system and banks, it is difficult to attribute the deepening recessions in all leading countries to a sudden drop in credit availability after the banking crisis of September and October. That happened later. Instead, the evidence suggests the shock from the banking failures alongside already strained economic conditions shattered confidence and caused a sudden reduction in demand worldwide. At the same time as companies began retrenching and scaling back investment plans, the financial system has been tightening the supply of credit. Combined, this has set in motion the vicious circle of economic woes now gripping the world. Banks play an important role in any economy so much so that, by efficiently channeling funds to productive uses, they can meaningfully improve prospects for employment and wealth creation. Yet, if they run into difficulties, they become sources of turmoil and painful contraction in economic activity. The Indian Central Bank has been taking pro-active steps during the last few months to improve liquidity and increase lending activity. The liquidity crisis of October-November 2008 ,is definitely behind us and there is ample liquidity in the system, now. However, the lending activities of the banks and non-banking financial institutions are not yet back on track. Lending is much below the desired levels and both mid-cap and small-cap companies are suffering. Thus, apart from improving liquidity, the RBI should take appropriate measures to ensure easy availability of credit. This would be the biggest challenge for RBI in the forthcoming credit policy. http://in.biz.yahoo.com/090126/203/6zd6j.html -- Those who work at a thing heart and soul not only achieve success in it but through their absorption in that they also realize the supreme truth—Brahman. Those who work at a thing with their whole heart receive help from God. Swami Vivekananda --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups ""GLOBAL SPECULATORS"" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [email protected] For more options, visit this group at http://groups.google.com/group/globalspeculators?hl=en -~----------~----~----~----~------~----~------~--~---
