The Bank of England and the Bank of Canada have issued a working paper proposing a framework for the resolution of international financial crises.

Resolution of International Financial Crises: Private Finance and Public Funds by Andy Haldane and Mark Kruger is the culmination of 18 months of work by the Bank of England and the Bank of Canada. The model aligns incentives for all parties to deal with a crisis and preserve the integrity of the international financial system. It attempts to be clear about the respective roles and responsibilities of the public and private sectors.

A central element in shaping private sector expectations is knowledge that the official sector will behave predictably, say the authors. “Constraints on lending by the International Monetary Fund are a key step in that direction. They ensure that private sector involvement is a crucial part of crisis resolution, and
they help encourage debtors and creditors to seek co-operative solutions to a crisis.”

The framework may reduce the incidence and cost of financial crises through constraints, clarity, and orderliness.