Author Description

This Paper Evaluates Ways To Protect Highly Dollarized Banking Systems From Systemic Liquidity Runs (such As The Ones That Took Place Recently In Argentina, Uruguay, And Paraguay). In View Of The Limitations Of Available (private Or Official) Insurance Schemes, And The Distortions Introduced By Central Bank Lending Of Last Resort (lolr), The Authors Favor Decentralized Liquid Foreign Asset Requirements On Dollar Deposits, Supplemented By A Scheme Of Circuit Breakers. The Latter Combines The Use Of Limited Dollar Liquidity To Ensure The Convertibility Of Transactional Deposits With A Mechanism That Automatically Limits The Convertibility Of Dollar Term Deposits Once Triggered By A Predetermined Decline In Banks' Liquidity. Contents; I. Introduction; Ii. Can Liquidity Be Borrowed?; Iii. The Case For Liquidity Requirements; Iv. Should Circuit Breakers Be Institutionalized?; V. Conclusions; A Model Of Lender Of Last Resort (lolr) And Bank Demand For Dollar Liquidity; References Eduardo Levy Yeyati, Alain Ize, Miguel Kiguel. September 2005. Includes Bibliographical References (p. 29-30). English