It is less clear what safeguards regional institutions are adopting to enable them to say no to members when the lending is not justified. Moreover, in countries where reserves are plentiful, it may tempting to lend to insolvent institutions and to avoid the difficult reforms necessary to address the underlying weaknesses.
Distinguishing between illiquidity and insolvency, though critical to being an effective lender of last resort, is exceedingly difficult. The difference hinges on many assumptions about future economic conditions, including global and domestic demand, interest rates, commodity prices, exchange rates, and so on, as well as the behavior of market participants, policymakers, and consumers. Moreover the determination is not a static one.