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

  • Andy Haldane
  • Mark Kruger

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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File URL: http://www.bankofcanada.ca/wp-content/uploads/2010/02/wp01-20.pdf
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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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Web page: http://www.bank-banque-canada.ca/

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  1. Kenneth Rogoff, 1999. "International Institutions for Reducing Global Financial Instability," NBER Working Papers 7265, National Bureau of Economic Research, Inc.
  2. Cohen, Daniel, 2000. "The HIPC Initiative: True and False Promises," CEPR Discussion Papers 2632, C.E.P.R. Discussion Papers.
  3. 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.
  4. 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.
  5. Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 401-19, June.
  6. 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.
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