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At Your Service! Liquidity Provision and Risk Management in 19th Century France

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  • Bignon, Vincent
  • Avaro, Maylis

Abstract

This paper uses a historical study to show a solution to the trade-off faced by central banks between providing liquidity to a broad group of financial intermediaries and the risk that this easy access may fuel moral hazard. In late 19th century the Bank of France operated a very wide discount window and used a variety of risk management techniques to effectively subdue risk-taking behaviors and to protect its balance sheet from taking any loss. This allowed agents to monetize a very diverse set of capital while limiting the risk of bail-out. We show that this effectively helped the central bank to stabilize the economy from the consequences of negative income shocks.

Suggested Citation

  • Bignon, Vincent & Avaro, Maylis, 2019. "At Your Service! Liquidity Provision and Risk Management in 19th Century France," CEPR Discussion Papers 13556, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:13556
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    Cited by:

    1. Bignon, Vincent & Flandreau, Marc, 2018. "The Other Way: A Narrative History of the Bank of France," CEPR Discussion Papers 13138, C.E.P.R. Discussion Papers.
    2. Mitchener, Kris James & Monnet, Eric, 2023. "Connected Lending of Last Resort," CAGE Online Working Paper Series 651, Competitive Advantage in the Global Economy (CAGE).
    3. Louis-Marie HARPEDANNE DE BELLEVILLE, 2019. "The Credit Mediation Scheme: 10 years of service to businesses and the economy [La Médiation du crédit : 10 ans au service des entreprises et de l’économie]," Bulletin de la Banque de France, Banque de France, issue 225.
    4. Rieder, Kilian, 2022. "Monetary policy decision-making by committee: Why, when and how it can work," European Journal of Political Economy, Elsevier, vol. 72(C).

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    More about this item

    Keywords

    Lender of last resort; Central bank; Discount window; Retail and shadow banks;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • N13 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: Pre-1913

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