Preparing for the Next Financial Crisis

Institutions 305

very bad. Finally, the “seniority” of IMF lending would have a positive aspect, as it

allows the IMF to lend more at lower rates, reducing the likelihood of a short- term

liquidity crisis and a longer- term solvency crisis (Saravia, 2010). This would also be

the case because the possibility of “dilution” should encourage private creditors to

monitor debtor countries more closely, thereby reducing moral hazard. This debate

has prompted the IMF to adjust its nancial assistance modalities, with the view

to developing intervention policies more consistent with its initial mandate, nota-

bly in the direction of behaving like a central bank discount window–i.e. being

willing to extend a substantial volume of credit on short not ...