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Establishing Monetary Control in Financial Systems with Insolvent Institutions

Author

Listed:
  • Donald J. Mathieson

    (International Monetary Fund)

  • Richard D. Haas

    (International Monetary Fund)

Abstract

The paper addresses the problem of establishing monetary control in financial systems with insolvent institutions. In particular, it examines the potential adverse selection, moral hazard, and collusion problems that can arise if indirect, auction-based monetary control systems are used in this environment. The analysis also considers the credit risks that can be assumed by the authorities when these market failures occur. The implications of using several alternative monetary control mechanisms, including a narrow banking system, the use of credit ceilings, and a two-tier banking system, are also examined.

Suggested Citation

  • Donald J. Mathieson & Richard D. Haas, 1995. "Establishing Monetary Control in Financial Systems with Insolvent Institutions," IMF Staff Papers, Palgrave Macmillan, vol. 42(1), pages 184-201, March.
    • Handle: RePEc:pal:imfstp:v:42:y:1995:i:1:p:184-201
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    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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