Second, IMF facilities generally cannot match the swap lines in terms of speed of delivery, as the decision processes at the IMF are unavoidably more cumbersome. At present, the IMF’s maximum lending capacity is just over a trillion US dollars. At their peak in early December 2008, the USD swaps amounted to over USD 580 billion, after having increased very rapidly to that level in a matter of a few weeks11. If needed, the total could have risen much higher because the swaps had been uncapped vis-à-vis key central banks, which also mattered greatly in terms of signalling. If the IMF or any other international organisation is to be able to provide a credible alternative to the swaps, it must be able to expand its balance sheet speedily and on a large scale when the need arises. In short, it would have to function like a global central bank. This is not likely to be in the cards in the near future. So where do we stand regarding cross-border banking? In some sense, we are in the middle of a strong river. Some want to go back, as they do not find it safe to continue – perhaps because they are not offered a helping hand – and given the choices currently available, it could be better for them to stay on the other side. Others are banding together to hold hands and wade across. And still others are strong enough to go it on their own.
“The Fault Lines in Cross-Border Banking: Lessons from the Icelandic Case”. SUERF Studies 05/2010, European Money and Finance Forum (2010). Baldursson and Portes give a recent assessment of the rise and fall of the Icelandic banks: Friðrik M Baldursson and Richard Portes (2013), “Gambling for resurrection in Iceland: the rise and fall of the banks”, CEPR Discussion Paper 9664, September. 5  Fleming and Klagge describe the Federal Reserve’s foreign exchange swap lines: Michael J. Fleming, and Nicholas J. Klagges. “The Federal Reserve’s Foreign Exchange Swap Lines. Federal Reserve Bank of New York: Current Issues in Economics and Finance”, 16, 4 (2010). Allen and Moessner analyse the important role of the US Dollar surplus in the policy response to the crisis and compare it to the policy response during the Great Depression: William A Allen and Richard Moessner (2010), “Options for meeting the demand for international liquidity during financial crises”, BIS Quarterly Review, September 2010, http://www.bis.org/. 2  BIS central bankers’ speeches  of the safety net and the associated moral hazard-mitigating mechanism in cross-border banking applied across the board to regulation, supervision, LOLR, deposit insurance, and crisis management and resolution. The adjustment that needs to take place after the crisis in order to make cross-border banking safer is clear in principle: the market action and the public framework in the form of the safety net and other arrangements has to be better aligned.