Global%20Financial%20Safety%20Nets%3A%20Where%20Do%20We%20Go%20from%20Here%3F

Working Papers

Global Financial Safety Nets: Where Do We Go from Here?


CODE: IDB-WP-231
AUTHOR(s): Fernández-Arias, Eduardo , Levy Yeyati, Eduardo
PUBLISHED: November 2010
LANGUAGE: English
RELATED TOPICS: Finance
DOWNLOAD FILE IN: English

Abstract:

An analysis of the performance of the global financial safety net during the 2008-2009 crisis, and an evaluation of its new components, indicates that, from an emerging markets perspective, the net remains full of holes despite recent stitches. This paper therefore proposes an effective and workable international lender of last resort (ILLR) for systemic liquidity crises based on: i) an automatic trigger to access the facility; ii) unilateral country prequalification to the facility during Article IV consultations; and iii) liquidity funded by the world’s “issuers of last resort.” These principles would support a reliable and broad-based ILLR without the carrying costs associated with inefficient reserve hoarding, which would actually work as an effective preventive facility with minimal room for moral hazard.

Related links:

Wikipedia: International Lender of Last Resort
Related Research by JEL Codes:
(or click here to find research by JEL Codes)
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