CENTRAL BANK OF CHILE AS LENDER OF LAST RESORT
Arias A., Gonzalo J.
By contrasting the four pillars of Bagehot´s classical theory of the Lender of Last Resort with the Basic Constitutional Act of the Central Bank of Chile (CB), the conditions of the loan are proposed. The emergency loan should have penalty rate that avoids the moral hazard of taking the risk of becoming illiquid and having the CB as a Lender of Last Resort. It is also proposed that this penalty rate could be determined by the application of the law 18.010, or by the application of a penalty tax with a fixed rate of 25.5% or 27% or with a progressive penalty rate. In both cases, the paid tax cannot be deducted as a credit against other taxes. A third alternative is presented: apply the same interest rate of the IMF. Finally, private banks cannot transfer the charged interest to the creditors. Regarding the good collateral, the proposal is to require a long-term security classified by a credit rating agency with AAA, AA o A. This is because they represent the higher capacity to pay the guaranteed capital and interested and are less affected, deteriorated or delayed for possible changes in the issuer, the industry to it belongs or the economy. Finally, an amendment to article 36.1 of the Basic Constitutional Act of the Central Bank of Chile is presented.