Central Banks as Lenders of Last Resort - Trendy or Passe?

David Laidler

No 20048, University of Western Ontario, Economic Policy Research Institute Working Papers from University of Western Ontario, Economic Policy Research Institute

Abstract: From Henry Thornton (1802), through Walter Bagehot (1873) until Ralph Hawtrey (1932), the lender of last resort function was central to the theory of central bank behaviour. In that role, the bank was urged to aid individual banks in times of crisis, but also and crucially to provide liquidity to the market. In modern circumstances, banking systems are subject to a degree of regulation and oversight that did not exist before the Great Depression, and the first element in the lender of last resort's role has become rather unimportant. The latter element remains crucial in dealing with financial crises, however, even in a world in which, in normal times, monetary policy is executed through interest rates rather than the reserve base.

Keywords: monetary policy; central bank; financial crisis; liquidity (search for similar items in EconPapers)
JEL-codes: B12 B22 E5 E58 (search for similar items in EconPapers)
Date: 2004
New Economics Papers: this item is included in nep-cba and nep-pke
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Citations: View citations in EconPapers (7)

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