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

  • Curzio Giannini

    (Banca d'Italia)

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    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/temi-discussione/1998/1998-0341/tema_341_98.pdf
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    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
    Contact details of provider: Postal: Via Nazionale, 91 - 00184 Roma
    Web page: http://www.bancaditalia.it

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    1. Frederic S. Mishkin, 1994. "Preventing Financial Crises: An International Perspective," NBER Working Papers 4636, National Bureau of Economic Research, Inc.
    2. Charles Goodhart, 1988. "The Evolution of Central Banks," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262570734, June.
    3. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1996. "Inflows of Capital to Developing Countries in the 1990s," Journal of Economic Perspectives, American Economic Association, vol. 10(2), pages 123-139, Spring.
    4. 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.
    5. Eaton, J. & Fernandez, R., 1995. "Sovereign Debt," Papers 37, Boston University - Department of Economics.
    6. 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.
    7. 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.
    8. Owen Evens & Peter J. Quirk, 1995. "Capital Account Convertibility; Review of Experience and Implications for IMF Policies," IMF Occasional Papers 131, International Monetary Fund.
    9. Dani Rodrik, 1995. "Why is there Multilateral Lending?," NBER Working Papers 5160, National Bureau of Economic Research, Inc.
    10. 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.
    11. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817, March.
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