Indeed, foreign liquidity assistance should also help lower interest rates (and thus improve firms' and households' cash flow). The resulting strengthening of domestic balance sheets helps undo the asymmetric information problems created by a financial crisis. The need for providing liquidity has once again become the primary focus of governments around the world.
Today I would like to review the principles that should govern such lending and then examine some key issues concerning the activities of an international lender of last resort, including which institutions could play this role. How should a lender of last resort operate?