Liquidity Shocks, Banking System Failures and Supranational Lending of Last Resort Facilities

Germana Corrado

In a small open economy with a high share of short term foreign currency denominated debt the arrival of some negative information on banks' investment returns may lead to severe bank runs. We analyse how a supranational institution which acts as an international lender of last resort can cope with banking crises by guaranteeing run-proof bank deposit contracts.