Transparency and Ambiguity in Central Bank Safety Net Operations

October 1, 1997

Preview Citation

Format: Chicago

Charles Enoch. Transparency and Ambiguity in Central Bank Safety Net Operations, (USA: International Monetary Fund, 1997) accessed November 24, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

To mitigate the risks of contagion from problems arising in the banking sector, many countries operate some form of banking sector safety net. Such safety nets generally involve a judicious mixture of transparency and ambiguity. This ambiguity may be important to counter moral hazard effects but may lead to excessive forbearance in the face of banking problems. While the scope for ambiguity has been declining, some ambiguity in the handling of individual institutions remains. In any case, ex post transparency is essential for reviewing the propriety of any assistance and preserving the authorities’ future reputation and policy credibility.

Subject: Banking, Banking safety nets, Commercial banks, Deposit insurance, Distressed institutions, Financial crises, Financial institutions, Financial sector policy and analysis, Moral hazard

Keywords: Ambiguity, Asset quality, Bank, Bank failure, Bank liability, Bank risk, Banking safety nets, Central bank, Central banks, Commercial banks, Deposit insurance, Depositor, Distressed institutions, Lender-of-last-resort, Moral hazard, Problem bank, Rule, Safety net, Safety nets, Transparency, WP

Publication Details

Pages:

28
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1997/138
Stock No:

WPIEA1381997
ISBN:

9781451930115
ISSN:

1018-5941

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