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Solutions to the Moral Hazard Problem Arising from The Lender‐of‐last‐resort Facility

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  • Gregory Moore

Abstract

The provision of liquid funds via a lender‐of‐last‐resort facility has been the chief means by which governments have chosen to prevent or stay bank runs. The introduction of such a facility, however, leads to a moral hazard problem which weakens each financial manager’s commitment to sound banking, and hence may ultimately make the few bank runs which do occur more dramatic in both size and seriousness. In this paper I provide a survey of the various policy measures which have been proposed to mitigate the effects of the moral hazard problem arising from the introduction of a lender‐of‐last‐resort facility.

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  • Gregory Moore, 1999. "Solutions to the Moral Hazard Problem Arising from The Lender‐of‐last‐resort Facility," Journal of Economic Surveys, Wiley Blackwell, vol. 13(4), pages 443-476, September.
    • Handle: RePEc:bla:jecsur:v:13:y:1999:i:4:p:443-476
    DOI: 10.1111/1467-6419.00090
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    1. repec:hal:spmain:info:hdl:2441/153e5es3a8988omf0qkf000ql2 is not listed on IDEAS
    2. Bryan Fitz-Gibbon & Marianne Gizycki, 2001. "A History of Last-resort Lending and Other Support for Troubled Financial Institutions in Australia," RBA Research Discussion Papers rdp2001-07, Reserve Bank of Australia.
    3. Alberto Zazzaro, 2001. "Specificità e modelli di governo delle banche: un' analisi degli assetti proprietari dei gruppi bancari italiani," Moneta e Credito, Economia civile, vol. 54(216), pages 487-517.
    4. Marie-Laure Djelic & Joel Bothello, 2013. "Limited liability and its moral hazard implications: the systemic inscription of instability in contemporary capitalism," Post-Print hal-01891963, HAL.
    5. repec:spo:wpmain:info:hdl:2441/153e5es3a8988omf0qkf000ql2 is not listed on IDEAS
    6. Laurent Le Maux, 2021. "Bagehot for Central Bankers," Working Papers Series inetwp147, Institute for New Economic Thinking.

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