Currency boards are subject to runs if the foreign currency reserve is insufficient to back the convertible money supply. We construct a simple model and show how pre-specified optimal reserve commitments can avert currency board runs. If there exists asymmetric information on the government's...

Although bank loans themselves are somewhat illiquid because of private information, most of their cashflows are not. Recent financial innovations allow commercial loans to be liquefied via credit derivatives and actual and synthetic securitizations. The loan originating bank holds the remaining...