Central banks are regulatory institutions that practice oversight over local banks. Regulatory policy life cycle challenges affect the effectiveness of regulatory processes for each stage of the policy life cycle poses challenges to the regulatory process (Garcia-Murillo, 2005). Central banks are the regulatory institutions for local banks because they exercise oversight authority over the financial institutions (Whitford & Tucker, 2012). Although the central bank offers banking services to local banks, the sole aim of the existence is to regulate the financial systems by developing and implementing standards for administering local banks. Regulation is defined as a broad term that encompasses the development of numerous policies, frameworks, laws, rules, and regulation towards the development and implementation of standards. Regulation is not restricted to banking as numerous other sectors with a nation are regulated (Beck & Woolfson, 2000). Therefore, in examining the role of central banks of regulating local banks and the challenges faced, it is essential to evaluate the concept of regulation in general (Michael et al., 2016). Several theories have been published covering the origin of regulation in multifaceted sectors (Bovens et al., 2001). This document aims to conduct a critical review regarding policy life cycle stages and the challenges offered by each during the instigation of regulatory policy by a regulator such as initiating, analyzing, implementing, and monitoring the regulatory policy.
Central banks implement specific policies in their role as regulators of local banks towards attaining standardization. The concept and implementation of regulation have been portrayed to revolve around the need for standardization of operations towards a common objective. The genesis of all regulatory activities has been portrayed to be activism and lobby activities that identify a hazard and seek the development of regulatory authority to develop and administer standards (Howlett & Newman, 2013).
The financial system is not an exemption, and the regulatory role of the central bank is based on the existence of a hazard requiring administration (Joanna, 2007). In their role of regulating local banks, central banks face numerous challenges emanating policy life cycle management (Howlett & Migone, 2012). Numerous other factors are affecting the regulation of local banks by the central bank that includes consumers, regulated entities and exogenous entities like government authorities, cabinet, and parliament. In any regulatory framework, consumers are integral stakeholders (Rothstein, 2005). The regulatory role of a central bank can be successful if a computational policy of life cycle management model (PLM) is created to address the ripple effects from negative feedback loops, policy, and complex relationships. The central bank should also adopt a rigorous policy of life cycle management.
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The Regulatory Role of Central Banks
The regulatory role of central banks involves many processes that include initiating, analyzing, implementing, and monitoring the regulatory policy. The policy processes are often considered as life cycle elements, considering that the process of regulation occurs in phases. Howlett & Newman, (2013) acknowledge that the regulatory process occurs in phases or stages necessitating a proper procedure of managing the transition from one stage to the other (Howlett & Newman, 2013). By discussing regulation in general sense, these publications help understand what the term life cycle means in regulatory processes (Joanna, 2007). The formation of a regulatory authority takes place in phases as a way of paving the way for the functioning of regulatory processes. Central banks offer emergency funding during financial crises to avert the escalation of disasters (Evanoff, 2014, 16). The policy life cycle of regulation has been exaggerated. The numerous phases are distinct processes that are separate from each other.
Central banks are also influenced by exogenous institutions which determine the confines of the regulations. They include cabinet, parliament, and government agencies. Regulated entities or local banks also play a role in the regulation process (Santomero et al., 2013). The role of complex relationships is essential considering that in its regulatory role, central banks manage relationships with numerous entities, and most of these relationships hamper the implementation process of regulation by diminishing outputs and quality. Central banks regulate economic activity through their oversight authority over local banks (Cargill, 2017, p. 3). A useful regulatory framework for the central bank must accommodate all the challenges faced by the institution through proper life cycle management towards mitigating the effects of the regulatory policy, negative feedback, and complex relationships (Joanna, 2007). As opined by Bovens et al. (2001) a regulatory regime must be capable of espousing rigorous policy life cycle management towards increasing the efficiency of policy implementation. The role of central banks also involves guarding against fluctuations and bubbles in the financial system (Masciandaro , 2011 p. 10). The lack of holistic IT tools to handle regulatory policy complexity is a hindrance to the effective implementation of regulatory policy by central banks. Central banks across the world are yet to make full use of information technology towards facilitating regulatory; technological avenues will play an essential role in the future success of regulatory processes (Apel, 2007). There is a gap between business and IT staff to handle such initiatives implying the absence of adequate IT staff to facilitate regulatory processes (Hills & Michalis, 2000). The success of information technology as a conduit of implementation of regulatory policy is dependent on the availability of trained staff towards these tasks (Whitford & Tucker, 2012). Central banks should invest in the right IT staff towards effectiveness.
The success of the central banks in regulatory processes is dependent on many factors that offer significant challenges. The complex relationships of multidimensional nature are a significant hindrance towards the effective regulation of the financial sector. Contrary to the assertion that relationships with different stakeholders create an uncomfortable situation that hampers the quality, output, and effectiveness of regulatory policies at the implementation level, that ineffective policies and approaches for the lapse in success. The exogenous entities have interests in the banking sector and are primary decision makers regarding the sector. For example, the cabinet or parliament may recommend a raft of measures towards the management of the banking sector. The central bank operates under the cabinet and parliament cannot go against their wishes (Apel, 2007). A problem ensues when the policies or laws made by the exogenous organizations contradict central bank proposals; it becomes difficult for the central bank to maneuver out of the situation (Dal, 2006). Local banks may also have their interests in policies that contradict central bank frameworks (Rosenbloom, 2007). The regulatory bank finds itself in a tight situation, reducing its ability to facilitate quality implementation of its policies (Bernstein, 2015). For example, the monetary policy is a preserve of the central bank, but laws originating from parliament could restrict central bank options regarding monetary policy proposals.
A computational Policy Life cycle Management (PLM) model is a solution to the myriad challenges facing regulation by central banks. The life cycle challenges faced by central banks in their regulatory mandate coupled with the ripple effects from negative feedback loops, policy, and complex relationships call for the espousal of a computational Policy Life cycle Management (PLM) model. Regulation is a matter of life cycle considering that the process involves the evolution of phases. A proper mechanism of managing the transitions from one stage to the other is the only way to guarantee effective implementation of regulatory policies. The computational Policy Life cycle Management (PLM) model will increase the success of the central bank’s regulatory policies by creating ease regarding the surmounting of challenges faced by the regulatory bank.
The merit of arguments that policy life cycle challenges are the major hindrances towards effective regulation of local banks by central banks is faulty. Although it is acknowledged that life cycle challenges could pose specific threats, central banks as regulatory systems only evolve once and thus life cycle does not affect the normal operations of the banks. Considering that a vast majority of the challenges facing central banks in their regulatory processes revolve around life cycle evolution, PLM is the surest solution since it offers a guideline for the bank to navigate the strict path towards the smooth transition from one stage to the other (Carpenter & Maureen, 2010). Another major significance of PLM towards effective implementation of regulatory policy is complex relationships (Bernstein, 1955). The PLM to be developed will have a straightforward guideline on how the central bank relates to multifaceted entities and institutions in its regulatory role (Rochet, 2009). It prescribes a formula for handling the exogenous entities by asserting its independence from any form of executive and legislative interference.
Although exogenous organizations have an oversight role to play in the economy and polity, matters of regulating a country’s financial system squarely lie within the jurisdiction of the central bank. PLM provides for a guideline that places absolute regulatory powers within the hands of the central bank. However, the benefits of PLM on the effective regulation of local banks have been exaggerated. In cases of contradictions, PLM offers a give-and-take formula for dealing with such scenarios in a manner that does not stifle the regulatory powers of the central banks (John, 1992). A typical example is when parliament passes laws in the public interest that touch on the regulatory tasks of the central bank. A law capping interest rates is an example of how the parliament may interfere with the central bank’s role. In such a situation, the central bank has to let the law apply, but offer an advisory opinion the parliament regarding the adverse effects of the same (Acocella et al., 2012). Another immediate area of PLM as a solution towards the complex relationship hampering the effective administration of central bank’s regulatory authority is the element of central bank’s relationship with local banks.
As a regulator, the central bank should exercise authority over these banks, but creates a harmonious relationship with them towards creating a beneficial working relationship. The central bank must ensure that local banks adhere to its standards as a way of facilitating standardization (Christopher & Peter, 2009). However, it must involve them as stakeholders when deliberating over issues towards decision making. PLM offers a deliberate measure towards addressing the negative feedback loop by taking charge of the communication and information dispensation (Bernstein, 2015). Through the provision of strategic and necessary information to the public at the right time, this approach hinders the escalation of conflicting information regarding the role of central banks in regulation (Carpenter & Maureen, 2010). The significance of information in regulatory matters cannot be overemphasized; therefore by taking charge of all information flows regarding its mandate, central banks increase its chances of success in regulation. Consumers are an important stakeholder in the regulatory role of the central bank because they are the center of regulation and are affected by all its processes (Richard, Christopher & Peter, 2009). By facilitating the cordial and constructive relationship between central banks and consumers, PLM ensures that the result of regulation is the protection of consumer interests and rights (Carpenter & Maureen, 2010). PLM offers a wide array of strategies towards the attainment of holistic relationship management by central banks to increase the success of regulatory policy implementation through life cycle management.
The assertion that the effectiveness of the central bank regulation is directly dependent on a rigorous policy of life cycle management is faulty. The regulatory life cycle is a partial factor in the role of central banks as regulators of local banks. Considering that systems of regulation evolve once, central banks do not manage the life cycles for a long time. The life cycle can be described as a series of stages, phases, and procedures through which the process of regulation is orchestrated. Such evolution occurs for a specified period, leaving the bank to execute their mandate (Carpenter & Maureen, 2010). The regulatory policy processes in central banks comprise of the stages like initiating, analyzing, implementing, and monitoring the regulatory policy. Central banks should focus on creating harmony, stability, and continuity among the various process of life cycle management (Turnpenny & Jordan, 2015). For instance, when initiative a regulatory policy there should be a focus on its implementation and monitoring.
Although no single face of the regulatory policy life cycle can occur in isolation, the evolution of regulatory systems is time-bound and central bank’s effectiveness cannot be pegged on life cycle challenges. There must be a focus on increasing harmony among the different phases of the life cycle (Acocella et al., 2012). Aligning all phases of the life cycle into one formidable process increases the effectiveness of regulation (Carpenter & Maureen, 2010). It also increases the effectiveness of surmounting the myriad challenges that include complex relationships. A comprehensive and standardized approach towards life cycle management offers a clear blueprint regarding the effectiveness of regulatory processes (Acocella et al., 2012). There must be efforts towards increases the harmony among the many stages of the life cycle. An approach that clumps together all stages of the life cycle into one regulatory function of the central bank increases the success of managing the life cycle
In summary, central banks are regulatory institutions considering that they have oversight authority over local banks. This document has conducted a critical review of policy life cycle stages and the challenges offered by each during the commencement of regulatory policy by a regulator such as initiating, analyzing, implementing, and monitoring the regulatory police. The paper considers the different views of authors and scholars through published literature on the subject. The multifaceted review has offered diverse views on the subject thus providing a balanced purview of the policy life cycle stages.
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