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Financial Crises in Wealthy Economies

Financial Crises in Wealthy Economies

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Financial crises and problems have left their marks on the majority of wealthy economies throughout history. Their levels of seriousness have proved to be as different as the abilities of those economies in question to keep them under control. By assuming that the act of receiving aid from the International Monetary Fund represents failure of the domestic Lender of Last Resort in restraining the problem at hand from spinning out of control, a simple logit model can shine some light upon the question; is the domestic Lender of Last Resort strong enough to prevent a full-scale financial crisis or not? The results provide us with five simple-to-follow rules that, if honoured at all times, would severely strengthen a structurally weak financial system that would otherwise burst easily. The rules seem remarkably simple but although they are easy to follow, they, unfortunately, can be tough to accept.