Toward An Effective Supervision of Partially Dollarized Banking Systems

By Antonio Garcia Pascual, Jorge Cayazzo, Socorro Heysen, Eva Gutierrez

January 1, 2006

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Antonio Garcia Pascual, Jorge Cayazzo, Socorro Heysen, and Eva Gutierrez. Toward An Effective Supervision of Partially Dollarized Banking Systems, (USA: International Monetary Fund, 2006) accessed November 21, 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

The paper presents a supervisory framework that addresses the vulnerabilities of partially dollarized banking systems. The tendency to underprice systemic liquidity risk and currency-induced credit risk creates vulnerabilities that need supervisory responses. The framework seeks to induce agents to better internalize risks by implementing a risk based approach to supervision, following the risk management guidelines of the Basel Committee, and by establishing buffers to cover higher liquidity and solvency risks. The paper also shows that most dollarized countries have addressed their liquidity vulnerabilities, but few have addressed those arising from currency-induced credit risks.

Subject: Banking, Credit risk, Currencies, Exchange rate risk, Exchange rates, Financial regulation and supervision, Foreign exchange, Liquidity risk, Money

Keywords: Adequacy ratio, Bank portfolio, Bank Supervision, Bank supervisor, Banking system, Banks' credit risk management, Bank's liquidity, Banks' liquidity risk strategy, Credit risk, Currencies, Dollarization, Exchange rate risk, Exchange rates, Financial Stability, Foreign currency, Foreign currency borrower, FX assets, FX loan portfolio, Liquidity profile, Liquidity requirement, Liquidity risk, Net currency position, Risk Management, Solvency risk, Systemic liquidity risk, WP

Publication Details

Pages:

50
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2006/032
Stock No:

WPIEA2006032
ISBN:

9781451862928
ISSN:

1018-5941

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