Transparency and Ambiguity in Central Bank Safety Net Operations

Author/Editor:

Charles Enoch

Publication Date:

October 1, 1997

Electronic Access:

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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.

Series:

Working Paper No. 1997/138

Subject:

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

English

Publication Date:

October 1, 1997

ISBN/ISSN:

9781451930115/1018-5941

Stock No:

WPIEA1381997

Pages:

28

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