Financial Industry: Services for State Governments & Commercial Banking Systems

Financial Industry is one of the most important industries in a country that encompasses the activities of money management including credit unions, insurance companies, banks, accountancy companies, and other financial institutions all aimed at all aimed at providing financial services to their members, investors, financial prospects and the country as a whole (Bholat, & Darbyshire, 2016). The financial and banking services for a specific state government and its commercial banking system, together with the regular implementation of states, monetary policies, and issuance of currency, is a major and fundamental activity for the financial performance of any country as well as stabilizing the economy of the country. To enhance these activities, a need for every country to have a central bank is necessary, which is basically an institution that enhances the management of a country's financial and banking activities such as currency management, money supply, and the supervision of commercial banking systems. More so, central banks can be defined as state entities that are responsible for the monetary system of respective countries or groups of countries, basically regulating the interest rates and the supply of money in those states. Bholat, & Darbyshire, 2016, defines a central bank as a semi-independent government authority that conducts monetary policy, regulates banks, and provides financial services to a respective state. Therefore, the importance of central banks has led to its development in certain countries. Considerably, unlike commercial banks, central bank is usually a monopoly in major financial activities of a country's financial industry. Central banks usually are the most dominant financial institutions in most states playing the major roles in the financial industries, with stringent goals and objectives, significant operational methodologies, and a unique structure as discussed below.

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A central bank of any state, a country, or a group of countries plays the man roles in the financial industry of that country. The central banks trace their origin in the seventeenth century during the founding of the first institution that was known as the central bank, the Swedish Riksbank. The initial central banks were aimed at acting as commerce clearinghouses and lending funds to the government. After a while, the well-known central bank, the Bank of England was founded with the aim of purchasing government debts (Mehrotra & Yetman, 2015). Gradually, more central banks were established in Europe; some were founded to address the monetary disarrays.

Additionally, these early central banks served as private entities that performed other banking activities. The transition of the central banks involved the inducement of more functions such as the enhancement of financial stability and the management of gold standard to which was adhered to by many states that prevailed until 1914. The transition of the central banks in the nineteenth century grew rapidly to the modern functions with the incorporation of tools of open market operations, monetary policy, changes in reserve requirements and discount window lending to impact on short term interest rates, long term financial policies, and monetary base of the respective states as well as achieving vital policy goals.

In most countries, the central bank acts as a monopoly upon other monetary and bank institutions on the responsibility of increasing the monetary base of a respective country. Most considerably, they regulate the printing and coining of state currency. Nevertheless, most central banks in many countries are institutionally independent of interference by political concepts (Goodhart, & Lastra, 2018). Therefore, the state's political matters do not at any instance interfere with the operations of the central banks. More so, the central banks of specific states perform similar functions as central banks that serve groups of countries. The central banks usually are superior to other banks such as commercial banks and financial institutions and, therefore, tend to supervise their financial and banking operations. Apart from the monetary and financial activities of central banks, they also conduct economic research and carry out different functions to ensure the nation's currency is stable, minimal inflation rates, and low unemployment rates. To perform these functions they usually have effective governance and administrative structure. Considerably, the central banks are aligned with long term policy goals of the respective countries.

The central banks perform numerous and major functions in every country's financial industry and therefore depicted to possess monopoly and exempted from political interference. These functions include; issuance of currency, acting as a banker to government, supervision and regulation of other banks as well as acting as their banker, controlling of credits and money supply, exchange control, acting as the custodian of foreign exchange, government bonds and balances, serving as the lender of last resort and collection and publication of data (Ingves, Meyersson, & Kahn, 2018). The central banks are usually given the mandate to issue currency so as to secure the control of the volume of currency and credit in the respective states. This currency is usually the coined and notes money that is in circulation in different countries as legal tender. Considerably, the central banks are required to keep an amount as reserve either as foreign security or as gold as per statutory regulations (Ball et al., 2016). It acts as a banker to the government, both central and state government, carrying out all the government's banking businesses. The central bank acts as bankers bank in three ways; as the custodian of other banks cash reserves, as the lender of last resort and performing central clearance, settlement, and transfer activities of other bank institutions (Ingves, Meyersson, & Kahn, 2018). Another major function of central banks is the control of credit and money supply. They perform this function through their monetary policy, which is based on credit and currency. Through the performance of this function, there is effective price stability and full employment levels. The execution of monetary policy is based on different instruments which include, bank rates, open market operations, and cash reserve ratio. Through exchange control the central banks ensure that the external value of states' currency is maintained. The lender of last resort function is applied when commercial banks have exhausted their resources that supplement their funds during liquidity crisis periods. In the regulation and control of foreign exchange and balances, the central bank oversees the external value of the country's currency as well as managing the exchange controls (Mehrotra, & Yetman, 2015). Finally, the central banks collect, compiles and analyze statistical data and information that is related to banking industry in a country and other financial sectors of the economy to aid in the process of policymaking.

The operations of central banks of different states are based on different aspects that enhance the performance and realization of the above functions in an effective and efficient way. These aspects are; the identity of the most influential central banks in the world, the major instruments or tools used by the central banks in the performance of the above responsibilities as well as impacting the economy and how the structure of the central banks aids in decision making (Goodhart, & Lastra, 2018). Under the first aspect, influential central banks, major nations have central banks, and therefore global banks usually work closely and against each other to realize their goals and objectives with Federal Reserve Bank in the United States is the most influential central bank. The process of decision making is enhanced by the boards of the central banks. Notably, all central banks have a relatively similar structure, and therefore the board holds meetings regularly to discuss the policy measures to induce in their respective states. Considerably, due to the fact that most central banks are under the independent ownership of the government and external influence, the winning motions from board's discussions are usually implemented (Goodhart, & Lastra, 2018). However, some central bank administration may differ from others by relatively small degrees. For instance, the Federal Reserve Bank operates under the legislation stipulated Federal Reserve Act. Finally, the operation of the central bank is based on different tools that directly impact the economy. These include interest rates, whereby, interest rates refer to the amount that commercial banks must pay to borrow from the central bank and have to be adjusted regularly and open market operations which entails either buying or selling of government bonds on open markets or the allocation of money to commercial banks for specific periods in exchange for collateral, (Ball et al., 2016) all aimed at influencing money supply in the economy.

Just like any other institution that serves the public, the private, or the government, central banks usually have the objectives that they usually seek to achieve. These include regulation of inflation rates to ensure that there is a low and stable rate of inflation, creation of full employment in the economy, stabilizing the markets, both financial markets and financial institutions, maintaining interest rates, and maintaining stable exchange rates (Bech, & Malkhozov, 2016). To enhance the achievement of these objectives, the central banks act independently, out of external influence and interference, and operate with transparency in the implementation of their policies in order to maintain credibility, and therefore, the central banks are accountable for their policies and decisions. In addition, the central banks ensure there is effective communication with the public and the financial markets to build effective trust while decision making process is carried out in a committee of the central bank board (Filardo, Genberg, & Hofmann, 2016).

The structure of the central banks slightly differs from one another in distinct states (Weidner, 2017). For instance, the Federal Reserve Bank and other central banks in other states. The more complex structure of the Federal Reserve Bank consists of a board of governors, twelve Federal Reserve banks, Federal Open Market Committee, Federal Advisory Council and members of commercial banks (Oritani, 2019). The board of governors constitutes seven members that are appointed by the United States president and then confirmed by the senate. The Twelve Federal Reserve Banks constitute three appointed directors by the board of governors to each Federal Reserve Banks and six elected directors to each Federal Reserve Bank by the members of the commercial banks (Weidner, 2017). The Federal Open Market Committee comprises of the seven members of board of governors, the presidents of Federal Reserve Banks of New York, and presidents of four other Federal Reserve Banks. The Federal Advisory council comprises of twelve members who are bankers and are selected by the members of the Twelve Federal Reserve Banks. The board of governors sets within limits the reserve requirements as well as reviewing and determining the discount rates. The board is actively involved in decisions making concerning the conduct of monetary policy in United States. The Federal Open Market Committee usually directs the open market operations while the Twelve Federal Reserve Banks members establish the discount rates, Clear checks, withdraw the damaged currency from circulation, issues the new currency as well as administering and making d...