Download or read book The Role of Supervisory tools in Addressing Bank Borrowers' Currency Mismatches written by Maria del Mar Cacha and published by International Monetary Fund. This book was released on 2003-11-01 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: Bank borrowers' currency mismatches often result from unhedged foreign currency borrowing in economies where there is significant dollarization, exposing the financial sector to disguised credit risk. In the absence of standard tools or guidelines to counteract this risk, countries have resorted to outright regulatory limits in cases of moderate dollarization and to undesirable exchange controls in other cases. This paper proposes a "specific-to-group" provision rule based on the effective borrowing cost differential between domestic and foreign currency. Such a rule would help internalize the corresponding risks for banks and their borrowers in line with internationally accepted prudential and accounting standards.