IMF Working Papers Volume 2006 Issue 032: Toward An Effective Supervision of Partially Dollarized Banking Systems (2006)

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Toward An Effective Supervision of Partially Dollarized Banking Systems

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Mr. Jorge Cayazzo

Mr. Jorge Cayazzo
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Mrs. Socorro Heysen

Mrs. Socorro Heysen
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Miss Eva Gutierrez

Miss Eva Gutierrez
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Series:: IMF Working Papers

Volume/Issue:: Volume 2006: Issue 032

Language:: English

Publication Date:: 01 Jan 2006

DOI:: https://doi.org/10.5089/9781451862928.001

ISBN:: 9781451862928

ISSN:: 1018-5941

Pages:: 50

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

Legal-disclaimer:: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Series:: IMF Working Papers

Volume/Issue:: Volume 2006: Issue 032

Language:: English

Publication Date:: 01 Jan 2006

DOI:: https://doi.org/10.5089/9781451862928.001

ISBN:: 9781451862928

ISSN:: 1018-5941

Pages:: 50

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

Legal-disclaimer:: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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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.

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IMF Working Papers

ISSN:: 1018-5941

Publisher:: International Monetary Fund

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