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Transition to a Functional Financial Safety Net in Latin America

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  • Peter M. Garber

Abstract

The basic worldwide financial safety net architecture provides for a system of similar institutions: a lender of last resort, deposit insurance, and prudential regulation. In countries whose banking systems suffer seriously from negative capital positions and overbanking, such as in some Latin American markets, the safety nets and the detailed mechanisms of their operation may not be functional in reducing excessive risk taking. They offer banks strong incentives to double their bets for survival. Thus, banks` negative capital positions have been eliminated with capital injection, liquidation, and mergers.

Suggested Citation

  • Peter M. Garber, 1997. "Transition to a Functional Financial Safety Net in Latin America," Research Department Publications 4056, Inter-American Development Bank, Research Department.
  • Handle: RePEc:idb:wpaper:4056
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    File URL: http://www.iadb.org/research/pub_hits.cfm?pub_id=WP-339&pub_file_name=pubWP-339.pdf
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    References listed on IDEAS

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    1. Liliana Rojas-Suárez & Steven R. Weisbrod, 1996. "Managing Banking Crises in Latin America: The Do's and Don'ts of Successful Bank Restructuring Programs," IDB Publications (Working Papers) 6864, Inter-American Development Bank.
    2. repec:idb:wpaper:319 is not listed on IDEAS
    3. Calomiris, Charles W., 1999. "Building an incentive-compatible safety net," Journal of Banking & Finance, Elsevier, vol. 23(10), pages 1499-1519, October.
    4. Garber, Peter M, 1996. "Managing Risks to Financial Markets from Volatile Capital Flows: The Role of Prudential Regulation," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 1(3), pages 183-195, July.
    5. Burkhard Drees & Ceyla Pazarbasioglu, 1995. "The Nordic Banking Crises; Pitfalls in Financial Liberalization?," IMF Working Papers 95/61, International Monetary Fund.
    6. Liliana Rojas-Suárez & Steven R. Weisbrod, 1996. "Managing Banking Crises in Latin America: The Do's and Don'ts of Successful Bank Restructuring Programs," IDB Publications (Working Papers) 6212, Inter-American Development Bank.
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    Cited by:

    1. Roberto Chang & Andrés Velasco, 2000. "Liquidity Crises in Emerging Markets: Theory and Policy," NBER Chapters,in: NBER Macroeconomics Annual 1999, Volume 14, pages 11-78 National Bureau of Economic Research, Inc.
    2. Brock, Philip L., 1998. "Financial safety nets and incentive structures in Latin America," Policy Research Working Paper Series 1993, The World Bank.
    3. Claessens, Stijn & Klingebiel, Daniela, 1999. "Alternative frameworks for providing financial services," Policy Research Working Paper Series 2189, The World Bank.

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