This paper which touches on the links between the macroeconomic and microeconomic dimensions of monetary management argues that bank soundness is a sine quo non of price stability (or exchange rate stability) and vice versa. It then describes the structural weaknesses of a banking system that create conditions for a financial crisis. The paper concludes by describing how official oversight can buttress market discipline given some externalities inherent in the banking industry and the public goods nature of banking soundness.
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