Toward An Effective Supervision of Partially Dollarized Banking Systems

Antonio Garcia Pascual, Jorge Cayazzo, Socorro Heysen and Eva Gutierrez

No 2006/032, IMF Working Papers from International Monetary Fund

Abstract: The paper presents a supervisory framework that addresses the vulnerabilities of partially dollarized banking systems. The tendency to underprice systemic liquidity risk and currency-induced credit risk creates vulnerabilities that need supervisory responses. The framework seeks to induce agents to better internalize risks by implementing a risk based approach to supervision, following the risk management guidelines of the Basel Committee, and by establishing buffers to cover higher liquidity and solvency risks. The paper also shows that most dollarized countries have addressed their liquidity vulnerabilities, but few have addressed those arising from currency-induced credit risks.

Keywords: WP; foreign currency; bank supervisor; banking system; liquidity requirement; solvency risk; Bank Supervision; Financial Stability; Risk Management; Dollarization; adequacy ratio; FX loan portfolio; net currency position; liquidity profile; FX assets; bank portfolio; bank's liquidity; foreign currency borrower; systemic liquidity risk; banks' credit risk management; Credit risk; Currencies; Liquidity risk; Exchange rates; Exchange rate risk; banks' liquidity risk strategy (search for similar items in EconPapers)
Pages: 50
Date: 2006-01-01
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Citations: View citations in EconPapers (18)

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