Economic crises such as the one affecting Asia could be mitigated if a big lender steps in and provides unlimited liquidity, according to David Marshall of the Federal Reserve Bank of Chicago. The 1995 Mexican peso crisis was averted when the United States lent the government $28 billion, he writes. No private lender was willing to extend a similar amount of credit, because Mexico had only $10 billion in dollar reserves, he says. Yet the large loan stabilized the economy and benefited all investors, he writes.

The Asia crisis has continued because there is not a large lender willing to step in as the U.S. government did with Mexico, he writes. To help with future crises, countries could create an international lender of last resort that could step in and provide unlimited liquidity during times of panic, he writes. This lender would require regulatory authority to set capital levels for borrowers from the fund, he notes.

For a copy of "Understanding the Asian Crisis: Systemic Risk as a Coordination Failure," call 312-322-5111 or visit

A new study links mortgage default rates and bankruptcy filings. Peter J. Elmer and Steven A. Seelig of the Federal Deposit Insurance Corp. reviewed the reasons why consumers default on mortgages. They find personal insolvency is a primary driver of mortgage defaults. Also important are significant declines in home values. The researchers also compiled a chart showing that personal bankruptcy and mortgage default rates historically rise and fall simultaneously.

For a copy of "Insolvency, Trigger Events, and Consumer Risk Posture in the Theory of Single-Family Mortgage Default," call 202-898-6796 or e-mail knewman A companion study, "The Rising Long-Term Trend of Single-Family Mortgage Foreclosure Rates," also is available.

Investors should not overreact to the significant decline in bank holding company capital, according to Beverly Hirtle of the Federal Reserve Bank of New York.

Ms. Hirtle finds that average Tier 1 and total capital ratios for U.S. bank holding companies fell about 50 basis points in 1997. The drop was even more pronounced for big bank holding companies, she writes.

She attributes the decline to stock repurchases and other efforts to return earnings to shareholders. It is not because banking companies have riskier assets that require high capital reserves, she writes. If banking companies suffer losses, they could quickly bolster capital by reducing stock repurchases, she adds.

For a copy of "Bank Holding Company Capital Ratios and Shareholder Payouts," call 212-720-6134 or visit www.ny.frb.orga/rmaghome/curr_iss/1998.htm.

A few large lenders fail to file government reports on the sale of mortgages to the secondary market, according to Randall M. Scheessele of the Department of Housing and Urban Development. As a result, Home Mortgage Disclosure Act data undercount purchases by Fannie Mae and Freddie Mac, he writes. To counter this, the researcher recommends the two government- sponsored enterprises break down the number of loans they purchase by seller.

Despite the undercounting, Mr. Scheessele writes that the data are useful. "HMDA's under-reporting of mortgage market activity does not prevent the use of HMDA to estimate mortgage market shares provided careful analyses recognize the limitations of HMDA data," he writes. For a copy of "HMDA Coverage of the Mortgage Market," call 202-401-0388.

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