Central Banks

A central banks main responsibility is controlling a Countrys financial reserves (monetary policy) by actively fixing interest rates and reserve requirements, as well as “bailing out” banks during times of financial crisis. They are also responsible for avoiding bank runs that could lead to a banks failure, as well limiting risky actions such as fraud by commercial banks and other similar financial institutions. For the most part, central banks in the more financially developed countries are allowed to act in a completely autonomous, non-politically ordered fashion. There are several public financial institutions that dictate a States currency, financial reserves and rates of interest: reserve banks, monetary authorities and central banks. Generally, the latter also have the responsibility of supervising national commercial banking systems. Central banks have exclusive authority regarding incrementing the Countrys monetary base, dictating how much currency is to be printed by the State Treasury; this authority is exclusive and is not extended to commercial banks. Two well-known Central Banks are the European Central Bank (ECB) and the Federal Reserve of the United States of America.