To cope with the self-fulfilling liquidity runs that triggered many recent financial crises, we propose the creation of a country insurance facility. The facility, which we envisage as complementary to the existing multilateral lending facilities, would provide eligible countries with automatic...

The rise and fall of Argentina's currency board illustrates the extent to which the advantages of hard pegs have been overstated. The currency board did provide nominal stability and boosted financial intermediation, at the cost of endogenous financial dollarization, but did not foster fiscal or...

The traditional approach to the central bank's lender of last resort function emphasizes the trade-off between being too 'tough', and thus increasing the likelihood that the failure of a single bank hampers the confidence in the whole banking system, and being too 'soft', thereby creating...

In recent years, Latin American banking sectors have experienced an accelerated process of concentration and foreign penetration that has prompted diverse views regarding its implications for the competitive behavior of banks and for the financial stability of the system as a whole. Exploiting a...

We study the impact of competition on banks' risk-taking behavior under different assumptions about deposit insurance and the dissemination of information. While financial opening increases banks' riskiness, a risk-based deposit insurance or, alternatively, the public disclosure of financial...

This paper presents a portfolio model of financial intermediation in which currency choice is determined by hedging decisions on both sides of banks' balance sheets. Minimum variance portfolio (MVP) allocations are found to provide a natural benchmark to estimate the scope for dollarization of...

This paper analyzes the behavior of closed-end country fund discounts, including evidence from the Mexican and East Asian crises. We find that the ratio of fund prices to their fundamental value increases dramatically during a crisis, an anomaly that we denote the quot;closed-end country fund...

In this paper, we analyze the behavior of closed-end country fund discounts during a period that covers the Mexican and the East Asian crises. We find that the ratio of country fund prices to their fundamental value increases dramatically during a financial crisis, an anomaly that we denote as...

Because of deposit insurance, banks maximize the value of the option implicit in the deposit contract by investing in high-yield high-risk projects. In the presence of barriers to international capital flows, low risk developed countries are associated with narrow intermediation margins and low...

The Argentine crisis witnessed, among other things, a deposit run, the suspension of deposit convertibility, and a boom in the stock market. We argue that this boom reflects the cost that depositors were willing to incur to get their money out of the banking system, in light of the impending...