Abstract
I analyze banking crises in a quantitative double-decker model of financial frictions. Small open economies have deeper crises than closed or large economies because the risk-free rate is unaffected. An international lender of last resort (LOLR), even if it induces an increase in banks' leverage, benefits these economies. For the levels of liquidity support documented by Laeven and Valencia (2013), pools of small economies are sustainable LOLRs only if they have many uncorrelated countries or large initial levels of reserves. A country with ample reserves like China can be a sustainable international LOLR. However, model simulations suggest that China may have overreached its capacity to be a LOLR.
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