On the Viability of an International Lender of Last Resort

Dr. Benedikt Zanker MSc

doi:10.5771/9783845201122

Summary

Over the last decade the global financial system has been shaken by financial crises in emerging economies all over the world. The result of these crises has been turmoil in financial markets, a severe deceleration of economic growth and hardship in the economies involved. The International Monetary Fund was quickly identified as a main culprit and has been the subject of intense debate ever since. While a consensus has developed that the Fund is in need of wide-ranging reforms, an agreement on which reform path to follow is still lacking. An often recurring proposal is to restructure the IMF into an international lender of last resort along the lines developed by Walter Bagehot, then editor of the Economist, in the late 19th century. Although this proposal appears initially suggestive, it has been frequently dismissed out of hand as unrealistic by policy makers as well as academics. The book analyses in detail whether this dismissal is founded or whether a rigourous reform along Bagehotian lines could indeed help to increase the stability of the global financial system.

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Bibliographic data

Copyright year: 2007
ISBN-Print: 978-3-8329-2568-0
ISBN-Online: 978-3-8452-0112-2
Publisher: Nomos, Baden-Baden
Series: Aktuelle Materialien zur Internationalen Politik
Volume: 73
Language: English
Pages: 374
Product type: Book Titles

Titelei/Inhaltsverzeichnis No access Pages 2 - 12
Acknowledgements No access Pages 13 - 14
1. Introduction No access Pages 15 - 20
2. 1. Regime Theory No access Pages 20 - 25
  2. 1. Global Public Goods No access
    2. Moral Hazard Problems No access
    3. Principal-Agent Problems No access
  3. 1. The Efficient Markets Hypothesis No access
    2. The Financial-Instability Hypothesis No access
    3. Rational Herding No access
3. Structure of the Analysis No access Pages 42 - 46
1. 1. Four Types of Currency Crises No access Pages 47 - 52
  2. The Problem of Contagion No access Pages 52 - 53
2. 1. First Generation Models No access Pages 53 - 56
  2. Second Generation Models No access Pages 56 - 58
  3. 1. Macroeconomic Feedback Models No access
    2. Bank-run and Liquidity Models No access
    3. Models of Expectations Formation and Herding Behaviour No access
3. 1. Empirical Evidence No access Pages 62 - 63
  2. Evaluation No access Pages 63 - 66
  3. Lessons and Implications No access Pages 66 - 67
1. 1. Improved Transparency and Higher Regulatory Standards No access Pages 68 - 71
  2. An International Credit Insurance No access Pages 71 - 72
  3. The Tobin Tax No access Pages 72 - 74
  4. A Global Central Bank No access Pages 74 - 75
  5. A World Currency No access Pages 75 - 76
2. 1. A Sovereign Debt Restructuring Mechanism No access Pages 76 - 78
  2. The Calomiris Proposal No access Pages 78 - 80
  3. The Report by the Independent Task Force No access Pages 80 - 84
  4. The Meltzer Report No access Pages 84 - 86
  5. The Köhler Approach: Procedural Changes No access Pages 86 - 88
3. Conclusion No access Pages 88 - 89
1. 1. Enhancing Access to Foreign Currency No access
2. 1. 1. Issues in Last Resort Lending No access
    2. Individual Institutions versus the Monetary System No access
    3. Contemporary Response No access
  2. 1. Lending Freely No access
    2. Penalty Rates No access
    3. The Collateral No access
    4. Financial Stability after 1866 No access
3. 1. Theoretical Considerations No access Pages 104 - 107
  2. The Case for an International Lender of Last Resort No access Pages 107 - 109
  3. Fundamental Differences between International and Domestic Settings No access Pages 109 - 111
  4. The IMF as International Lender of Last Resort No access Pages 111 - 113
  5. The Fund’s Record as Crisis Manger No access Pages 113 - 116
1. 1. The Setting No access Pages 117 - 120
  2. The Run on Banks and Trust Companies No access Pages 120 - 121
  3. Pressure on Money, Stock and Call Loan Markets No access Pages 121 - 123
  4. Lessons of 1907 No access Pages 123 - 124
2. 1. The Setting No access Pages 124 - 125
  2. The Crisis No access Pages 125 - 128
  3. Lessons of the Sterling Crisis No access Pages 128 - 129
3. 1. The Mexican Peso Crisis No access Pages 129 - 131
  2. 1. Crisis in Thailand No access
    2. Crisis in South Korea No access
    3. Crisis in Indonesia No access
  3. 1. The Rouble Crisis No access
    2. Crisis in Brazil No access
    3. Crisis in Argentina No access
  4. Lessons from Emerging Market Crises No access Pages 143 - 145
1. 1. Current Funding Needs of the IMF No access
2. 1. Lending-in-last-resort as Input in Monetary Policy No access Pages 153 - 157
  2. Lending-in-last-resort as Input in Banking Policy No access Pages 157 - 160
  3. Necessary Funding for an International Lender of Last Resort No access Pages 160 - 161
  4. Estimating Short-term External Obligations in the Developing World No access Pages 161 - 166
  5. Liquidity Gaps in the Past No access Pages 166 - 170
3. Conclusion and Implications No access Pages 170 - 172
1. The Concept of Collateral No access Pages 173 - 176
2. 1. 1. Argentina’s Contingent Repurchase Facility No access
  2. 1. Privatisation in Latin America No access
    2. Privatisation in East Asia No access
    3. Privatisation in China No access
    4. Privatisation in Russia No access
  3. 1. 1. The US-Mexican Framework Agreement No access
    2. 1. Telephone Receivables No access
      2. Workers’ Remittances No access
      3. Credit Card Receivables No access
      4. Taxing Export Earnings No access
3. Problems Arising from the Imposition of Strict Collateral Requirements No access Pages 199 - 201
4. Implications for the Viability of an International Lender of Last Resort No access Pages 201 - 202
1. Advantages of Pre-qualification No access Pages 203 - 206
2. 1. Transparency Criteria No access Pages 206 - 211
  2. 1. Capital Adequacy Requirements No access
    2. Minimum Reserve Requirements No access
    3. Internationalisation of the Financial Sector No access
    4. Deposit Insurance No access
  3. 1. Solvency Ratios No access
    2. Liquidity Ratios No access
3. Conclusion: Pre-qualification Is the Way Forward No access Pages 228 - 229
1. IMF Induced Moral Hazard No access Pages 230 - 233
2. 1. Evidence on Creditor-side Moral Hazard No access Pages 233 - 241
  2. Evidence on Debtor-side Moral Hazard No access Pages 241 - 244
3. 1. Empirical Evidence on Catalytic Finance No access
4. Instruments Mitigating Moral Hazard Problems No access Pages 249 - 252
1. 1. Interests of Borrowing Countries No access Pages 253 - 255
  2. Interests of International Investors No access Pages 255 - 255
  3. 1. Foreign Policy Objectives No access
    2. Financial Sector Interests No access
    3. Creditor Country Costs No access
  4. Evidence on IMF Lending Arrangements No access Pages 259 - 260
2. 1. IMF Voting Weights No access Pages 260 - 264
  2. 1. Voting Power at the Board of Governors No access
    2. Voting Power at the Executive Board No access
    3. Constituencies at the Executive Board No access
    4. The Power of Industrialised and Developing Countries at the IMF No access
3. 1. Governance Reform Proposals No access Pages 275 - 279
  2. Political Difficulties No access Pages 279 - 281
  3. Governance Reform and Pre-qualification No access Pages 281 - 282
1. 1. New Money Approach No access Pages 283 - 286
  2. The Brady Plan No access Pages 286 - 287
2. 1. Successful Restructurings No access Pages 287 - 290
  2. Problems due to Renegade Creditors No access Pages 290 - 293
  3. Need for Reform No access Pages 293 - 294
3. 1. A Code of Good Conduct No access Pages 294 - 297
  2. Collective Action Clauses No access Pages 297 - 300
  3. A Sovereign Debt Restructuring Mechanism No access Pages 300 - 303
4. 1. Concerns on the Effectiveness of Collective Action Clauses No access Pages 303 - 309
  2. Market-based Approach as the Way Forward No access Pages 309 - 310
1. 1. Principles for Effective Liquidity Assistance No access Pages 311 - 313
  2. Principles for Effective Monitoring and Supervisory Work No access Pages 313 - 315
2. 1. General Membership No access Pages 315 - 317
  2. 1. Sovereign Stability Criteria No access
    2. Criteria Indicating Financial Sector Stability No access
3. 1. Lending Rules Governing PRGF and SBA Facilities No access Pages 322 - 323
  2. 1. Ensuring Liquidity Assistance in Sufficient Amounts No access
    2. Ensuring Liquidity Assistance Is Employed Effectively No access
    3. Reigning In on Debtor-side Moral Hazard No access
4. 1. Funding Issues No access Pages 327 - 328
  2. Transition Period No access Pages 328 - 330
1. 1. Opposition by Developed Countries and the G-7 No access Pages 331 - 336
  2. The Lacking Clout of Developing Economies No access Pages 336 - 337
2. 1. Regional Monetary Cooperation No access Pages 337 - 341
  2. Changes Inside the IMF No access Pages 341 - 344
Appendix No access Pages 345 - 345
Abbreviations No access Pages 345 - 346
Bibliography No access Pages 347 - 374