Lender of Last Resort and Bank Closure Policy

Xavier Freixas () and Bruno Maria Parigi

No 2286, CESifo Working Paper Series from CESifo

Abstract: During the last decades a consensus has emerged that it is impossible to disentangle liquidity shocks from solvency shocks. As a consequence the classical lender of last resort rules, as defined by Thornton and Bagehot, based on lending to solvent illiquid institutions appear ill-suited to this environment. We summarize here the main contributions that have developed considering this new paradigm and discuss how institutional features relating to bank closure policy influences lender of last resort and other safety net issues. We devote particular emphasis to the analysis of systemic risk and contagion in banking and the role of the lender of last resort to prevent it.

Keywords: lender of last resort; systemic risk; contagion; bank closure; liquidity; discount window (search for similar items in EconPapers)
JEL-codes: E58 (search for similar items in EconPapers)
Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_2286

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