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The Resolution of International Financial Crises: Private Finance and Public Funds

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  • Andy Haldane
  • Mark Kruger

Abstract

Over the past year and a half, the Bank of England and the Bank of Canada have been developing a framework for the resolution of international financial crises that aligns incentives for all parties to deal with a crisis and preserve the integrity of the international financial system. The framework is built on principles, not rules. It attempts to be clear about the respective roles and responsibilities of the public and private sectors. A central element in shaping private sector expectations is knowledge that the official sector will behave predictably. Constraints on lending by the International Monetary Fund are a key step in that direction. They ensure that private sector involvement is a crucial part of crisis resolution, and they help encourage debtors and creditors to seek co-operative solutions to a crisis. Characterized by constraints, clarity, and orderliness, the framework has the potential to reduce the incidence and cost of financial crises.

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Bibliographic Info

Paper provided by Bank of Canada in its series Working Papers with number 01-20.

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Length: 26 pages
Date of creation: 2001
Date of revision:
Handle: RePEc:bca:bocawp:01-20

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Keywords: International topics;

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References

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  1. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  2. Kenneth Rogoff, 1999. "International Institutions for Reducing Global Financial Instability," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 21-42, Fall.
  3. George J. Benston & George G. Kaufman, 1998. "Deposit insurance reform in the FDIC Improvement Act: the experience to date," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q II, pages 2-20.
  4. Marcus H. Miller & Lei Zhang, 1999. "Sovereign Liquidity Crisis: The Strategic Case for A Payments Standstill," Working Paper Series WP99-8, Peterson Institute for International Economics.
  5. Cohen, Daniel, 2000. "The HIPC Initiative: True and False Promises," CEPR Discussion Papers 2632, C.E.P.R. Discussion Papers.
  6. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
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Citations

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Cited by:
  1. Jeanne, Olivier & Ostry, Jonathan D & Zettelmeyer, Jeronimo, 2008. "A Theory of International Crisis Lending and IMF Conditionality," CEPR Discussion Papers 7022, C.E.P.R. Discussion Papers.
  2. Benjamin Martin & Adrian Penalver, 2003. "The effect of payments standstills on yields and the maturity structure of international debt," Bank of England working papers 184, Bank of England.
  3. Andrew G Haldane & Gregor Irwin & Victoria Saporta, 2004. "Bail out or work out? theoretical considerations," Economic Journal, Royal Economic Society, vol. 114(494), pages C130-C148, 03.
  4. Randall S. Kroszner, 2003. "Sovereign Debt Restructuring," American Economic Review, American Economic Association, vol. 93(2), pages 75-79, May.
  5. Steven B. Kamin, 2002. "Identifying the role of moral hazard in international financial markets," International Finance Discussion Papers 736, Board of Governors of the Federal Reserve System (U.S.).
  6. Curzio Giannini, 2003. "Towards a sovereign bankruptcy procedure and greater restraint in IMF crisis lending. An interim assessmen," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 56(225), pages 83-112.
  7. Philipp Maier, 2007. "Do We Need the IMF to Resolve a Crisis? Lessons from Past Episodes of Debt Restructuring," Working Papers 07-10, Bank of Canada.
  8. Ashley Taylor & Prasanna Gai, 2004. "International financial rescues and debtor-country moral hazard," Econometric Society 2004 Far Eastern Meetings 561, Econometric Society.
  9. Andrew Powell y Leandro Arozamena, 2003. "Liquidity Protection versus Moral Hazard: The Role of the IMF," Business School Working Papers ocho, Universidad Torcuato Di Tella.
  10. Curzio Giannini, 2003. "Towards a sovereign bankruptcy procedure and greater restraint in IMF crisis lending. An interim assessmen," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 56(225), pages 83-112.
  11. Andrew Powell, 2002. "Countries with international payments´ difficulties: what can the IMF do?," Business School Working Papers veintitres, Universidad Torcuato Di Tella.
  12. Curzio Giannini, 2003. "Verso una procedura fallimentare per il debito sovrano e maggiore disciplina nei finanziamenti del Fondo Monetario Internazionale. Una valutazione di mezza via," Moneta e Credito, Economia civile, vol. 56(222), pages 161-193.
  13. John Chant & Alexandra Lai & Mark Illing & Fred Daniel, 2003. "Essays on Financial Stability," Technical Reports 95, Bank of Canada.
  14. Aitor Erce-Domínguez, 2006. "Using standstills to manage sovereign debt crises," Banco de Espa�a Working Papers 0636, Banco de Espa�a.
  15. Yilmaz AKYüZ, 2005. "Reforming The Imf: Back To The Drawing Board," G-24 Discussion Papers 38, United Nations Conference on Trade and Development.

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