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"Enemy of None but a Common Friend of All"? An International Perspective on the Lender-of-Last-Resort Function

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  • Curzio Giannini

    (Banca d'Italia)

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    Abstract

    The paper explores whether and how current lending-of-last-resort practices can be extended beyond national borders. It argues that what makes lending of last resort effective at the national level is a blend of resource availability, technical discretion, ex-ante supervision, and powers of enforcement. Accordingly, the importance of the distinction between illiquidity and insolvency and of penalty-rate financing is downplayed. Some peculiarities of the international environment make it difficult to replicate this structure, and this may explain why recent large-scale rescue packages have worked less than satisfactorily. However, private contingent credit facilities and IMF lending into arrears in the context of internationally-sanctioned, temporary moratoria on foreign debt, may offer some scope for effective, though limited in aims and resources, international liquidity support. To this purpose, amending the IMF Articles of Agreement appears indispensable, both to signal, contrary to the Bretton Woods design, the desirability of a high degree of capital mobility, and to facilitate the handling of temporary suspensions of foreign payments when such actions prove unavoidable.

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    File URL: http://www.bancaditalia.it/pubblicazioni/econo/temidi/td98/td341_98/td341en/tema_341_98.pdf
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    Bibliographic Info

    Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 341.

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    Date of creation: Dec 1998
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    Handle: RePEc:bdi:wptemi:td_341_98

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    Web page: http://www.bancaditalia.it
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    Keywords: financial market; international cooperation; financial aid;

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    1. Eaton, J. & Fernandez, R., 1995. "Sovereign Debt," Papers 37, Boston University - Department of Economics.
    2. Goodhart, Charles & Schoenmaker, Dirk, 1995. "Should the Functions of Monetary Policy and Banking Supervision Be Separated?," Oxford Economic Papers, Oxford University Press, vol. 47(4), pages 539-60, October.
    3. Robert Litan & William Isaac & William Taylor, 1994. "Financial Regulation," NBER Chapters, in: American Economic Policy in the 1980s, pages 519-572 National Bureau of Economic Research, Inc.
    4. Charles Goodhart, 1988. "The Evolution of Central Banks," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262570734, December.
    5. Rodrik, Dani, 1995. "Why is there Multilateral Lending?," CEPR Discussion Papers 1207, C.E.P.R. Discussion Papers.
    6. Riccardo De Bonis & Alessandro Giustiniani & Giorgio Gomel, 1999. "Crises and Bail Outs of Banks and Countries: Linkages, Analogies, and Differences," The World Economy, Wiley Blackwell, vol. 22(1), pages 55-86, 01.
    7. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1996. "Inflows of capital to developing countries in the 1990s," MPRA Paper 13707, University Library of Munich, Germany.
    8. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817.
    9. Miller, M. & Zhang, L., 1997. "A Bankruptcy Procedure for Sovereign States," The Warwick Economics Research Paper Series (TWERPS) 483, University of Warwick, Department of Economics.
    10. Owen Evens & Peter J. Quirk, 1995. "Capital Account Convertibility," IMF Occasional Papers 131, International Monetary Fund.
    11. Mishkin, Frederic S, 1994. "Preventing Financial Crises: An International Perspective," The Manchester School of Economic & Social Studies, University of Manchester, vol. 62(0), pages 1-40, Suppl..
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