Policy Responses: Benign Neglect, Exhortation, and Bank Holidays

Robert Z. Aliber, Charles P. Kindleberger and Robert McCauley
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Robert Z. Aliber: University of Chicago
Charles P. Kindleberger: Massachusetts Institute of Technology

Chapter Chapter 10 in Manias, Panics, and Crashes, 2023, pp 237-265 from Springer

Abstract: Abstract Is it best to leave a panic to run its course, or to rely on expedients short of providing money through a lender of last resort? Prevention in the form of supervision and regulation of financial institutions has left financial arrangements to susceptible to mania and panic. Countercyclical tightening of prudential standards may improve the record. Benign neglect of panic is rarely tried; moral suasion rarely works. Closing markets and regulatory forbearance can store up trouble. At times, banks are able to cooperate in a crisis to create quasi-money, to make rescues, or to guarantee liabilities. Deposit insurance usually serves to reduce the propensity of retail customers to run on banks. In a crisis, insurance limits can be raised or suspended, guarantees can be extended to bank bonds and the liabilities of nonbank financial institutions can be guaranteed.

Date: 2023
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DOI: 10.1007/978-3-031-16008-0_10

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