{ "title": "Emergency Liquidity Support Facilities", "publication": "IMF Working Papers, April 1, 2000", "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/30/emergency-liquidity-support-facilities-3542", "canonical": "https://www.imf.org/en/publications/wp/issues/2016/12/30/emergency-liquidity-support-facilities-3542", "overlayPath": "/en/publications/wp/issues/2016/12/30/emergency-liquidity-support-facilities-3542/index.md", "summary": "This paper discusses operational aspects of official emergency liquidity support to individual institutions under stress.", "sections": [ { "heading": "Summary", "content": "- This paper discusses operational aspects of official emergency liquidity support to individual institutions under stress.\n- It argues that properly designed lending procedures, clearly laid-out authority and accountability, as well as disclosures rules, will:\n - promote financial stability,\n - reduce moral hazard,\n - and protect the lender of last resort from undue political pressure.\n- Although there may well be good reasons to maintain ambiguity over the conditions for assistance, there are important advantages for developing, and for transition economies to follow a rule-based approach by setting out ex ante the necessary conditions for support, while maintaining that meeting such conditions is not sufficient for receiving support." }, { "heading": "Major arguments and operational considerations", "content": "- Properly designed lending procedures:\n - clarify operational implementation of emergency liquidity support.\n- Clearly laid-out authority and accountability:\n - help to insulate the lender of last resort from undue political pressure.\n- Disclosure rules:\n - can contribute to reducing moral hazard and enhancing financial stability.\n- Ambiguity versus rule-based approaches:\n - Ambiguity over conditions for assistance can be justified in some cases.\n - Important advantages exist for developing and transition economies to adopt a rule-based approach that sets out ex ante necessary conditions for support, with the caveat that meeting such conditions is not sufficient for receiving support." }, { "heading": "Policy recommendations and implications", "content": "- Design and adopt lending procedures that are transparent and operationally clear.\n- Establish and document authority and accountability frameworks for emergency liquidity support decisions.\n- Implement disclosure rules that balance transparency with the need to avoid exacerbating runs or moral hazard.\n- For developing and transition economies, consider specifying ex ante necessary conditions for support within a rule-based framework, while retaining discretion so that satisfying those conditions does not automatically guarantee assistance.\n\n---\n\n Content in this bundle\n\n- Emergency Liquidity Support Facilities - WP/00/79\n - Emergency Liquidity Support Facilities - WP/00/79 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - Emergency Liquidity Support Facilities - WP/00/79 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/30/emergency-liquidity-support-facilities-3542" } ], "bullets": [ "[Markdown version](/en/publications/wp/issues/2016/12/30/emergency-liquidity-support-facilities-3542/index.md)", "[Structured JSON version](/en/publications/wp/issues/2016/12/30/emergency-liquidity-support-facilities-3542/index.json)", "[Bundle manifest](/en/publications/wp/issues/2016/12/30/emergency-liquidity-support-facilities-3542/bundle-manifest.json)", "Authors: Dong He", "Published: April 1, 2000", "Series: IMF Working Papers", "DOI: https://doi.org/10.5089/9781451850192.001", "This paper discusses operational aspects of official emergency liquidity support to individual institutions under stress.", "It argues that properly designed lending procedures, clearly laid-out authority and accountability, as well as disclosures rules, will:", "Although there may well be good reasons to maintain ambiguity over the conditions for assistance, there are important advantages for developing, and for transition economies to follow a rule-based approach by setting out ex ante the necessary conditions for support, while maintaining that meeting such conditions is not sufficient for receiving support.", "Properly designed lending procedures:", "Clearly laid-out authority and accountability:", "Disclosure rules:", "Ambiguity versus rule-based approaches:", "Design and adopt lending procedures that are transparent and operationally clear.", "Establish and document authority and accountability frameworks for emergency liquidity support decisions.", "Implement disclosure rules that balance transparency with the need to avoid exacerbating runs or moral hazard.", "For developing and transition economies, consider specifying ex ante necessary conditions for support within a rule-based framework, while retaining discretion so that satisfying those conditions does not automatically guarantee assistance.", "**Emergency Liquidity Support Facilities - 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