Systemic banks and the lender of last resort

Jorge Ponce and Marc Rennert
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Marc Rennert: Deutsche Bundesbank and IAE Toulouse

No 1812, Documentos de Trabajo (working papers) from Department of Economics - dECON

Abstract: We propose a model whereby systemic and non-systemic banks are exposed to liquidity shortfalls such that a lender of last resort policy is required. We analyze the optimal allocation of lender of last resort responsibilities and find that it is socially optimal to move responsibilities from the central bank to an unconditional bailout rule when the shortfall is large enough. The existence of systemic banks provides a rationale for the central bank to act as lender of last resort for non-systemic banks in a larger range of their liquidity shortfalls. However, the impact of considering systemic risk on the optimal allocation of the lender of last resort responsibilities for systemic banks is ambiguous.

Keywords: Systemic banks; systemic risk; lender of last resort policy (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2012-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://hdl.handle.net/20.500.12008/2242 (application/pdf)

Related works:
Journal Article: Systemic banks and the lender of last resort (2015)
Working Paper: Systemic banks and the lender of last resort (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:ude:wpaper:1812

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