The Influence of Fiscal Strategy on the Financial Sector Stability Oversight

Abstract

It is the role of monetary policy to continue ensuring the financial stability of the banking sector, particularly in times of global economic crises and the digitalisation of financial services. Monetary measures remain a topical issue as the impact of traditional regulatory instruments in ensuring the security of banks depends on the economic conditions. The study aims to evaluate the consequences of the monetary policy on the banking sector's financial security and to find the best regulatory mechanisms to reduce banking risks. The research method depends on the analysis of the connection between the monetary indicators' level and stability of the banking system, on the research of the dynamics of the key macroeconomic indicators, on the comparison of the international experience, on the economic and mathematical modelling of the action of various regulatory measures effectiveness. The study's results confirm the efficiency of using changes in interest rates and required reserves as an instrument of banking risk control, but only in terms of their effectiveness, which mainly depends on the financial system. Both opportunities for bringing more people into the financial system and new regulatory issues arise from central banks' and digital financial technologies' introduction of digital currencies. The effectiveness of the first typeaggressive use of quantitative easing-is shown to lead to financial instability, while the secondmacroprudential measures-are the significant tools to prevent banking crises. Finally, the practical significance of its results is in the possibility that they should be applied to the development of a monetary policy more adaptable to current financial trends and risks. Central banks can use the proposed recommendations to make banking security policy measures more effective in countries where the economy is unstable, and they can propose a set of suitable measures to tackle these shortcomings.