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The Lender of Last Resort Under the Microscope, c. 1840–1930

In: Handbook of Cliometrics

Author

Listed:
  • Kilian Rieder

    (Oesterreichische Nationalbank (Eurosystem)
    Centre for Economic Policy Research (CEPR))

Abstract

This chapter dissects the experience of historical lenders of last resort (LOLR) “on the ground.” It first clarifies what a standard LOLR operation involved at the micro level, how the concomitant balance sheet mechanics played out in practice and why the LOLR limited support to illiquid, but solvent counterparties. The chapter then discusses supply and demand constraints that frequently obviated an elastic liquidity provision by the LOLR. It sheds light on whence these constraints originated, when they resulted in price and quantity rationing by the LOLR, which impacts they had on financial markets, and how the LOLR responded to them. Finally, the chapter analyzes the moral hazard implications of successful lending of last resort and explains how institutions acting as LOLR attempted to address these risks. The conclusion highlights several topics for future research on the historical LOLR. (JEL E58, G28, N13, N23)

Suggested Citation

  • Kilian Rieder, 2024. "The Lender of Last Resort Under the Microscope, c. 1840–1930," Springer Books, in: Claude Diebolt & Michael Haupert (ed.), Handbook of Cliometrics, edition 3, pages 1661-1696, Springer.
    • Handle: RePEc:spr:sprchp:978-3-031-35583-7_113
    DOI: 10.1007/978-3-031-35583-7_113
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    More about this item

    Keywords

    Lender of last resort; Bagehot; LOLR; Financial crisis; Central bank; Credit rationing; Stigma; Moral hazard; Banking regulation;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • N13 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: Pre-1913
    • N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913

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