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Reforming the International Financial System: the Middle Way
(598k)
(Issue 7, November 1999)

Mervyn King, Deputy Governor, Bank of England.

In his speech Mervyn King looks at the recent financial crises in the emerging market economies and suggests practical steps which could be taken in reforming the international financial system. Mr King sees the core of the problems faced by a number of emerging markets as the sharp reversal of capital flows and rapid contagion from one emerging market to other previously unaffected countries. These problems arise largely from short-term flows of debt finance, not long-term equity flows or direct investment. Either maturity or currency mismatches create the potential for sudden reversals of capital flows on a huge scale.

Lender of Last Resort: a Review of the Literature
(199k)
(Issue 7, November 1999)

Xavier Freixas, Curzio Giannini, Glenn Hoggarth and Farouk Soussa

(A version of this is reproduced in Journal of Financial Services Research (2000), Vol 18, Issue 1 "Lender of last resort - what have we learnt since Bagehot?") The maintenance of financial stability is facilitated by well-designed 'safety net 'arrangements aimed at limiting the risk of disruption in the financial system (crisis prevention) and the consequences of disruption if it arises (crisis management). An important element of crisis management is the lender of last resort (LOLR) function. This article reviews the main ideas on LOLR reflected in the academic literature, going back to Henry Thornton almost two hundred years ago.

Private Sector Involvement in Financial Crisis: Analytics and Public Policy Approaches
(203k)
(Issue 7, November 1999)

Andy Haldane

Involving the private sector in crisis prevention and resolution has become a key plank in the reform of the international financial architecture. This article outlines the scope for private sector involvement in the context of a model of financial crisis. It argues that appropriately designed public policies can bring welfare benefits to both private sector debtors and creditors, by guarding against co-ordination failures. This may, however, call for different public policy tools than traditional international ending of last resort.

Resolution of Sovereign Financial Crises - Evolution of the Private Sector Restructuring Process
(117k)
(Issue 6, June 1999)

Andrew Yianni, Partner, Clifford Chance

There has been much discussion in the international financial community at the policy-maker level recently on the issues of avoiding and resolving sovereign financial crises. Much of that discussion has focussed on measures which can be put in place either to assist in preventing the occurrence of a financial crisis or to assist in the resolution of a financial crisis. Given the level of private sector involvement in the financing of flows of capital to the emerging markets, the private sector is inevitably germane in this debate. Not surprisingly, experience of the involvement of the private sector in the 1980s debt crisis has been drawn upon to seek parallels with the current position. In drawing those parallels, much emphasis has been placed on the change in the composition of the debt obligations owed to the private sector.

Improving the Stability of the International Financial System
(56k)
(Issue 6, June 1999)

John Drage, International Finance Division, and
Fiona Mann, Regulatory Policy Division,
Bank of England (together with other Financial Stability colleagues)

An article in the previous Financial Stability Review outlined the financial and economic background to some of the issues under discussion on strengthening the international financial architecture. The debate was stimulated partly by the financial crises in a number of emerging market countries over the previous two years: crises which revealed serious flaws in macroeconomic management but also, just as important, in the structure and regulation of financial markets in both debtor and creditor countries. This article provides an overview of the work undertaken by the international community since the last FSR.

Key Resources

Memorandum of Understanding between HM Treasury, the Bank of England and the Financial Services Authority Download PDF (50k)