A (New) Country Insurance Facility*

Tito Cordella · Eduardo Levy Yeyati

26 citations0/0 files storedInternational Finance

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Global Financial Crisis and Policies Banking stability, regulation, efficiency Global Financial Regulation and Crises

Abstract

Abstract To cope with the self‐fulfilling liquidity runs that have 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 access to a credit line at a predetermined interest rate. Eligibility criteria should be easily verifiable, focus on debt sustainability, and take into account the currency and maturity composition of the debt. Other critical design issues considered here include the size of the facility, its duration and charges, and the exit costs for a country that loses eligibility.

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References

1983Bank Runs, Deposit Insurance, and Liquidity 1989Servicing the Public Debt: The Role of Expectations* *I have greatly benefited from comments received at Johns Hopkins University, Georgetown University, the Macro Lunch Group of the University of Pennsylvania, MIT, and the Research Department of the International Monetary Fund. I am particularly indebted to Matt Canzoneri, Sara Guerschanik-Calvo, Joseph Harrington, Jr, Elhanan Helpman, Nissan Leviatan, Maury Obstfeld, Assaf Razin, Sweder van Wijnbergen and two anonymous referees. The research on this paper was partly done while I was a visiting scholar at the Research Department of the Internationed Monetary Fund, and it was partially funded by the National Science Foundation. However, any opinions expressed are entirely my own and not those of any of the above institutions. This paper has already been published in the The American Economic Review, 78, 4, September 1988, pp. 647–661.2004Balance Sheet Effects, Bailout Guarantees and Financial Crises 1996A self-fulfilling model of Mexico's 1994–1995 debt crisis 2003On the Need for an International Lender of Last Resort 2003Bank bailouts: moral hazard vs. value effect 2004The case for GDP-indexed bonds 1995The Central Bank and the Financial System

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