operations. there may also be difficult political considerations that have to be taken. for example, a minority government may need to seek support from other parties to use budgetary resources, a support that may be hard to get or at least take some time. however, this is not to be taken as an argument for governments to use the central bank as a provider of support because it does not want to use budgetary resources. the central bank should be independent and control its own resources. the conclusion of this is that ela operations should have the role in the general crisis management infrastructure of dealing with quickly emerging problems. where problems arise gradually, other measures available to supervisory authorities and governments are more likely to be used. ela should be seen as a means for handling acute problems, so that the authorities gain time to decide whether other crisis management measures are needed, such as restructuring of troubled institutions. if private sector support can be organised, such as in the case of ltcm, that is of course to be preferred. if the view is accepted that ela should function as a “ bridge ” measure to prevent acute crises from occurring, it is very important that the support is given in a way that minimises the credit risk for the central bank, in order to avoid moral hazard effects. the central bank must have a well - considered exit strategy for its lending operations. the most obvious way to do this is to lend against collateral. in most cases where a need for support occurs, collateral that is normally accepted by the central bank will probably not be available. the central bank may in these cases be required to accept lower quality collateral. it should in these cases apply a larger haircut on the collateral than is used for normal collateral. another part of a proper exit strategy is that financial support should not be given to shareholders or other holders of risk capital. 2. internal procedures for ela in the previous section, two main points were suggested : ( 1 ) that ela is a measure that predominantly should be used for problems that arise without warning ; and ( 2 ) that ela should only be provided if there is a risk that a systemic problem would occur if the central bank did not act. these two features bring about requirements for the way central banks should organise the ela function internally. the possible need for speedy assistance necessitates that a central bank must have internal procedures for managing requests for liquidity support and doing so very rapidly. to accomplish this, central banks need to have a

detailed crisis plan that can be put in place within very short notice. the crisis plan should include the following types of information : organisational structure • a division of responsibilities for analysis, information, decision - making, etc. • staffing requirements for different tasks, with substitutes. analysis plan • a description of the information necessary to make a decision about whether or not a systemic crisis may occur. • necessary information about systemically important individual banks. information strategy • a plan for informing and coordinating information and decisions with the other domestic agencies involved in the crisis. • a plan for informing authorities in other countries about the situation. • a plan for communicating with the financial markets. • a plan for spreading information to the public and media ( ex ante and ex post transparency ). plan for implementing ela • a clear description of the routines which must be followed and the legal requirements which must be met for ela. legal procedures, for example contracts, for lending against other collateral than what is normally eligible • an inventory of the instruments available for implementing ela. • guidelines for acceptable collateral and appropriate haircuts. internal preparedness is important in order to be able to consider requests for ela, as the timeframe for reaction normally is very limited. it is important to note that preparation is crucial also if a central bank is to deny a request for ela. if the central bank has no organisation for analysing systemic consequences and the availability of measures, it is very likely that it will not dare not to lend. no central bank wants to give financial institutions and markets the slightest reason to depend on central bank support rather than their own efforts to avoid financial meltdown. clearly, ela is a last resort measure that central banks use only when the stability of the financial system is at stake. a well - planned and clear lolr function need not encourage moral hazard. on the contrary, a central bank with clear guidelines and a solid analysis capability is in the best position to pinpoint those situations in which ela is necessary. in all other situations, clear guidelines help the central bank to stand firm against the institutions ’ demands for help and to force markets to solve financial problems by themselves.