Central Bank Involvement in Banking Crises in Latin America

May 1, 2008

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Format: Chicago

Luis Ignacio Jácome. Central Bank Involvement in Banking Crises in Latin America, (USA: International Monetary Fund, 2008) accessed September 20, 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

This paper reviews the nature of central bank involvement in 26 episodes of financial disturbance and crises in Latin America from the mid-1990s onwards. It finds that, except in a handful of cases, large amounts of central bank money were used to cope with large and small crises alike. Pouring central bank money into the financial system generally derailed monetary policy, fueled further macroeconomic unrest, and contributed to simultaneous currency crises, thereby aggravating financial instability. In contrast, when central bank money issuance was restricted and bank resolution was timely executed, financial disturbances were handled with less economic cost. However, this strategy worked provided appropriate institutional arrangements were in place, which highlights the importance of building a suitable framework for preventing and managing banking crises.

Subject: Bank resolution, Banking, Banking crises, Financial crises, Monetary base

Keywords: Banking crisis, Exchange rate, Financial market, Foreign currency, Monetary policy, WP

Publication Details

Pages:

49
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2008/135
Stock No:

WPIEA2008135
ISBN:

9781451869941
ISSN:

1018-5941

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