the central bank issue appeals to the commercial bank through ??
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The issue of the relation between commercial banks and the central bank is a broad, general one which, if I adhere to it, risks a lack of focus in my remarks this morning. Nevertheless, I intend to adhere to it because, as I reflected upon this subject, it became clear that the relation is an important and far-reaching one, with potentially significant implications for a country's economic performance.
My "theme" this morning, in fact, is that a nation's commercial banks and central bank are reflections of each other. They are likely to succeed or fail together. While this theme may have some intuitive appeal in the arena of bank supervision and regulation—where there are clearly overlapping if not common interests—it may be less obvious in other areas of central bank responsibility and of commercial bank activity. It is, however, my firm conviction that the conduct of monetary policy (macroeconomic stabilization responsibilities) and payment system responsibilities are also critical components of central bank-commercial bank relations.
In market economies, the banking system plays a critical role in gathering funds from the public—mobilizing savings—and in channeling these credit resources to their most effective uses. Economies with minimal or underdeveloped banking systems will typically find capital formation, productivity and growth inhibited. An effective banking system can contribute over time to economic growth.
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