Transition to a Functional Financial Safety Net in Latin America

Peter Garber

No 6202, IDB Publications (Working Papers) from Inter-American Development Bank

Abstract: The basic worldwide financial safety net architecture provides for a system of similar institutions: a lender of last resort, deposit insurance, and prudential regulation. In countries whose banking systems suffer seriously from negative capital positions and overbanking, such as in some Latin American markets, the safety nets and the detailed mechanisms of their operation may not be functional in reducing excessive risk taking. They offer banks strong incentives to double their bets for survival. Thus, banks' negative capital positions have been eliminated with capital injection, liquidation, and mergers.

Keywords: safety net; negative capital; private deposit insurance; WP-339; developing secondary market (search for similar items in EconPapers)
Date: 1996-09
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Related works:
Working Paper: Transition to a Functional Financial Safety Net in Latin America (1997)
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