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provision of precautionary lending create moral hazard and counteract the original purpose of advancing financial stability. furthermore, they have already left the fund with a very high risk concentration. as liabilities to the international financial institutions now account for a large share of some debtors ’ foreign borrowing, conflicts of interest between the borrowers, imf shareholders and private creditors could put the imf financing mechanism at risk. ultimately, the entire concept of imf lending may end up in danger of being undermined. the bundesbank therefore welcomes a return to a lending policy more in line with the catalytic role of imf financing, a policy which the imf generally endorsed last year. establishing credible ex - ante clarity about financial assistance is crucial in this respect. the single most important element in a revised lending strategy would be a restrictive exceptional access policy stringently conditioned on acute needs and debt sustainability. exceptional access must be reserved for only a few true emergency cases. lending criteria need to be applied without exception. care must also be taken to ensure that prolonged use of fund resources does not intrude upon the world bank ’ s territory of catering to longer - term financing needs for development purposes. over the years the imf has repeatedly expanded its policy of lending to debtors that are in arrears to the private sector ( lia policy ). the bundesbank advocates the establishment and application of transparent and operational lia criteria and recommends that the regular access limits be respected. considerations to install a new precautionary lending facility after the expiration of the contingent credit line should not be pursued any further. uncapped precautionary lending without acute needs would push the imf towards the role of a general risk insurer. this would distort creditors ’ risk assessment, ie invite moral hazard and undermine debtors ’ incentives to build strong institutions and to implement sound policies. the international financial architecture will have to be constantly evolved through formal and informal international cooperation, with a special view to building strong institutions and to creating incentives that propagate stability.