Global Banking And The Role Of The Lander Of Last Resort

Miroslav Gregurek, Neven Vidaković and Josip Grgic

Montenegrin Journal of Economics, 2011, vol. 7, issue 1, 21-38

Abstract: The paper analyses the role of the lender of last resort in a global economy. The crisis started in 2008 has shown that in global crisis the problem of banks is not only with liquidity, but also with the lack of capital. In order to fully understand the bank's need for capital it is necessary to understand the process of globalization and development of modern economic movements. The paper starts with the model of closed economies which resembles the "island model", in the second stage of the model the globalization is introduced and communication between the islands. The model created by the authors shows how globalization is not only limited to flow of goods, services and capital, but can also be seen as changes in the variables optimized by the participants in the economy. The model shows how globalization process has deeply changed economic relationships. Special attention is paid to changes in monetary economy during the globalization process. Authors conclude that special global lender of last resort for liquidity is not a guarantor is stability and a last lender as global source of capital during crisis is hard to put into practice in a highly globalized world. Considering this, the best path towards global stability is the control of the scope of monetary process and monetary multipliers which exist in the global world.

Date: 2011
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