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Lesson 7d-iBig batnkstin small countries

  • Problem: Small countries (like Switzerland) will

not be able to bail out “big” banks (like UBS).

  • Way forward:

Provide a new role for IMF/BIS to arrange burden- sharing across countries.

(Attention:

distorts incentives for supervision

small country has not incentive to be strict if bailout is paid by neighboring large country)

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