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Toward An Effective Supervision of Partially Dollarized Banking Systems

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Author Info

  • Antonio Garcia Pascual
  • Jorge Cayazzo
  • Socorro Heysen
  • Eva Gutierrez

Abstract

The paper presents a supervisory framework that addresses the vulnerabilities of partially dollarized banking systems. The tendency to underprice systemic liquidity risk and currency-induced credit risk creates vulnerabilities that need supervisory responses. The framework seeks to induce agents to better internalize risks by implementing a risk based approach to supervision, following the risk management guidelines of the Basel Committee, and by establishing buffers to cover higher liquidity and solvency risks. The paper also shows that most dollarized countries have addressed their liquidity vulnerabilities, but few have addressed those arising from currency-induced credit risks.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/32.

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Length: 50
Date of creation: 01 Jan 2006
Date of revision:
Handle: RePEc:imf:imfwpa:06/32

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Related research

Keywords: Bank supervision; Financial stability; Risk management; Dollarization; Exchange risk; Risk premium; Banking systems; Credit; Liquidity; credit risk; banking; foreign exchange; credit risks; financial systems; capital requirements; banking system; banking supervision; bank for international settlements; capital adequacy; credit risk management; arbitrage; capital adequacy ratio; supervisory framework; loan classification; supervisory authorities; liquidity risk management; banking business; risk reduction; bank supervisors; bank liabilities; reserve requirement; prudential regulation; market risk; banks ? solvency; banking risk; risk assessment; supervisory agencies; capital requirement; risk management policies; banking institutions; emerging markets; bank solvency; bank data; monetary authority; disintermediation; consolidated supervision; bank regulations; minimum capital standard; legal framework; banks ? assets; bank capital; banking activities; bank deposits; bank profits; bank securities; loan review; international accounting standard; income statement; foreign exchange exposure; financial reporting; banks solvency; probability of default; bank portfolio; bank policy; capital standard; bank loans; minimum reserve requirement; interest coverage ratio; internal control; bank supervisor; accounting standard; cost of capital; banking supervisors; banks ? balance sheets; moral hazards; supervisory capacities; bank assets; moral hazard; bank loan; risk-weighted assets; banking risks; bank risk; bank operations;

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References

References listed on IDEAS
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  1. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2014. "Addicted to Dollars," Annals of Economics and Finance, Society for AEF, vol. 15(1), pages 1-50, May.
  2. Alain Ize & Andrew Powell, 2003. "Prudential Responses to De Facto Dollarization," Business School Working Papers defactodollarization, Universidad Torcuato Di Tella.
  3. Anne Marie Gulde & David S. Hoelscher & Alain Ize & David Marston & Gianni De Nicoló, 2004. "Financial Stability in Dollarized Economies," IMF Occasional Papers 230, International Monetary Fund.
  4. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
  5. Alain Ize & Miguel Kiguel & Eduardo Levy Yeyati, 2005. "Managing Systemic Liquidity Risk in Financially Dollarized Economy," Business School Working Papers managsystrisk, Universidad Torcuato Di Tella.
  6. Morris Goldstein & Philip Turner, 2004. "Controlling Currency Mismatches in Emerging Markets," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 373.
  7. repec:rus:hseeco:123906 is not listed on IDEAS
  8. Aaron Tornell & Frank Westermann (ed.), 2005. "Boom-Bust Cycles and Financial Liberalization," MIT Press Books, The MIT Press, edition 1, volume 1, number 9780262201599, December.
  9. Cem Karacadag & Paul J. Heytens, 2001. "An Attempt to Profile the Finances of China's Enterprise Sector," IMF Working Papers 01/182, International Monetary Fund.
  10. Gianni De Nicoló & Patrick Honohan & Alain Ize, 2003. "Dollarization of the Banking System," IMF Working Papers 03/146, International Monetary Fund.
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Citations

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Cited by:
  1. Torsten Wezel & Mario Mansilla & Gustavo Adler, 2009. "Modernizing Bank Regulation in Support of Financial Deepening," IMF Working Papers 09/199, International Monetary Fund.
  2. Yilmaz Akyuz, 2008. "Managing Financial Instability in Emerging Markets: A Keynesian Perspective," Working Papers 2008/4, Turkish Economic Association.
  3. Luca, Alina & Petrova, Iva, 2008. "What drives credit dollarization in transition economies?," Journal of Banking & Finance, Elsevier, vol. 32(5), pages 858-869, May.
  4. Felix Fischer & Charlotte J. Lundgren & Samir Jahjah, 2013. "Making Monetary Policy More Effective: The Case of the Democratic Republic of the Congo," IMF Working Papers 13/226, International Monetary Fund.
  5. Yilmaz Akyüz, 2009. "Mananging Financial Instability: Why Prudence is not Enough?," Working Papers 86, United Nations, Department of Economics and Social Affairs.
  6. Carlos Eduardo León Rincón & Alejandro Reveiz, . "La dolarización financiera: Experiencia internacional y perspectivas para Colombia," Borradores de Economia 482, Banco de la Republica de Colombia.
  7. García-Escribano, Mercedes, 2011. "Factores que impulsan la desdolarización en el Perú," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 21, pages 23-40.
  8. International Monetary Fund, 2011. "Policy Instruments to Lean Against the Wind in Latin America," IMF Working Papers 11/159, International Monetary Fund.

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