Transparency and Ambiguity in Central Bank Safety Net Operations

28 Pages Posted: 15 Feb 2006

See all articles by Charles Enoch

Charles Enoch

International Monetary Fund (IMF)

Peter Stella

Central Bank Archaeology

May Khamis

International Monetary Fund (IMF)

Date Written: October 1997

Abstract

To mitigate the risks of contagion from problems arising in the banking sector, many countries operate some form of banking sector safety net. Such safety nets generally involve a judicious mixture of transparency and ambiguity. This ambiguity may be important to counter moral hazard effects but may lead to excessive forbearance in the face of banking problems. While the scope for ambiguity has been declining, some ambiguity in the handling of individual institutions remains. In any case, ex post transparency is essential for reviewing the propriety of any assistance and preserving the authorities` future reputation and policy credibility.

Keywords: Safety nets, transparency, ambiguity, lender-of-last-resort, central banks

JEL Classification: G28, G29

Suggested Citation

Enoch, Charles and Stella, Peter and Khamis, May, Transparency and Ambiguity in Central Bank Safety Net Operations (October 1997). IMF Working Paper No. 97/138, Available at SSRN: https://ssrn.com/abstract=882699

Charles Enoch (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Peter Stella

Central Bank Archaeology ( email )

Venice, FL
United States

May Khamis

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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