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The ECB as Lender of Last Resort: Banks versus Governments

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  • Winkler Adalbert

    (Development Finance, Centre for Development Finance, Frankfurt School of Finance & Management gemeinnützige GmbH, Sonnemannstrasse 9–11, 60314 Frankfurt am Main, Germany)

Abstract

The OMT programme has been strongly criticized as being incompatible with the ECB’s mandate. Applying standard lender of last resort (LoLR) theory in the assessment of the OMT we find that when de facto operating as a LoLR for governments, the ECB is as much is line with its mandate as when performing as a LoLR for banks. None of four arguments used to explain why it is acceptable to have the ECB as a LoLR for banks, while a LoLR role for governments has to be rejected, namely a) the missing euro area fiscal backstop, b) the long-term nature of the euro crisis, c) the example of the US as a monetary union without a LoLR for sub-states and d) the claim that central bank purchases of government bonds ultimately always lead to inflation, is convincing. However, decisive steps towards fiscal and banking union are needed to stabilize the euro area.

Suggested Citation

  • Winkler Adalbert, 2015. "The ECB as Lender of Last Resort: Banks versus Governments," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 235(3), pages 329-341, June.
    • Handle: RePEc:jns:jbstat:v:235:y:2015:i:3:p:329-341
    DOI: 10.1515/jbnst-2015-0307
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    Cited by:

    1. Wojciech Grabowski & Ewa Stawasz-Grabowska, 2021. "How have the European central bank’s monetary policies been affecting financial markets in CEE-3 countries?," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 11(1), pages 43-83, March.
    2. Hjalte Lokdam, 2020. "‘We Serve the People of Europe’: Reimagining the ECB's Political Master in the Wake of its Emergency Politics," Journal of Common Market Studies, Wiley Blackwell, vol. 58(4), pages 978-998, July.
    3. Winkler Adalbert, 2018. "Zehn Jahre nach dem Konkurs von Lehman Brothers: Ordnungspolitische Irrtümer in der Bewertung der EZB-Geldpolitik seit der globalen Finanzkrise," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 19(2), pages 141-162, July.
    4. Lokdam, Hjalte, 2020. "We serve the people of Europe: reimagining the ECB's political master in the wake of its emergency politics," LSE Research Online Documents on Economics 111873, London School of Economics and Political Science, LSE Library.
    5. Dirk Meyer, 2016. "Euro-Geldschöpfung durch die Mitgliedstaaten: Gefahren aus nationalem Zusatzgeld," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 69(06), pages 30-40, March.

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    More about this item

    Keywords

    Lender of last resort; central banking; monetary union;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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