The Lender of Last Resort Under the Microscope, c. 1840–1930

Kilian Rieder

A chapter in Handbook of Cliometrics, 2024, pp 1661-1696 from Springer

Abstract: Abstract This chapter dissects the experience of historical lenders of last resort (LOLR) “on the ground.” It first clarifies what a standard LOLR operation involved at the micro level, how the concomitant balance sheet mechanics played out in practice and why the LOLR limited support to illiquid, but solvent counterparties. The chapter then discusses supply and demand constraints that frequently obviated an elastic liquidity provision by the LOLR. It sheds light on whence these constraints originated, when they resulted in price and quantity rationing by the LOLR, which impacts they had on financial markets, and how the LOLR responded to them. Finally, the chapter analyzes the moral hazard implications of successful lending of last resort and explains how institutions acting as LOLR attempted to address these risks. The conclusion highlights several topics for future research on the historical LOLR. (JEL E58, G28, N13, N23)

Keywords: Lender of last resort; Bagehot; LOLR; Financial crisis; Central bank; Credit rationing; Stigma; Moral hazard; Banking regulation (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-031-35583-7_113

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DOI: 10.1007/978-3-031-35583-7_113

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