Optimal Lender of Last Resort Policy in Different Financial Systems

Falko Fecht and Marcel Tyrell
Additional contact information
Marcel Tyrell: University of Trier

Finance from University Library of Munich, Germany

Abstract: In a framework closely related to Diamond and Rajan (2001) we characterize different financial systems and analyze the welfare implications of different LOLR-policies in these financial systems. We show that in a bank-dominated financial system it is less likely that a LOLR-policy that follows the Bagehot rules is preferable. In financial systems with rather illiquid assets a discretionary individual liquidity assistance might be welfare improving, while in market-based financial systems, with rather liquid assets in the banks balance sheets, emergency liquidity assistance provided freely to the market at a penalty rate is likely to be effcient. Thus, a 'one size fits all'- approach that does not take the dfferences of financial systems into account is misguiding.

Keywords: Comparing Financial Systems; Lender of Last Resort; Liquidity Crises (search for similar items in EconPapers)
JEL-codes: E44 E58 G18 G21 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2004-06-21
Note: Type of Document - pdf; pages: 30
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://econwpa.ub.uni-muenchen.de/econ-wp/fin/papers/0406/0406009.pdf (application/pdf)

Related works:
Working Paper: Optimal lender of last resort policy in different financial systems (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpfi:0406009

Access Statistics for this paper

More papers in Finance from University Library of Munich, Germany
Bibliographic data for series maintained by EconWPA ( this e-mail address is bad, please contact ).