But regional institutions are typically small and untested, and so their actions may risk undermining more-global efforts. Moreover, their lending may violate the principles I discussed above. In many cases, the IMF is likely the best institution to provide liquidity – it has long experience in this role, significant expertise, and the ability to distribute funds quickly.
However, IMF funds may be insufficient when the crisis countries – and associated capital markets – are large. In the mid-1990s and early 2000s, for example, the IMF worked in combination with other lenders in the cases of Korea and Mexico. Regardless of the institution providing emergency liquidity, several challenges must be addressed if that function is to remain effective.