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Supervision without Regulation: Discount Limits at the Austro-Hungarian Bank, 1909-1913

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  • Jobst, Clemens
  • Rieder, Kilian

Abstract

We show that European central banks used credit limits for discount loans as a means to enforce supervisory standards long before they had any formal regulatory powers. Drawing on novel micro data from the Austro-Hungarian Bank's archives, we document that credit limits were continuously monitored and that their size was contingent on counterparties' liquidity and capital position. Counterparties had an incentive-compatible economic motive to abide by informal prudential "rules of the game": higher credit limits enabled counterparties to streamline their day-to-day liquidity management. We exploit the heterogeneous exposure of counterparties to an exogenous liquidity shock to evidence that the Bank relaxed credit limits during crises to fulfill its role as a lender of last resort.

Suggested Citation

  • Jobst, Clemens & Rieder, Kilian, 2022. "Supervision without Regulation: Discount Limits at the Austro-Hungarian Bank, 1909-1913," CEPR Discussion Papers 16841, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:16841
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    More about this item

    Keywords

    Lender of last resort; Banking regulation; Central bank lending; Liquidity crisis; Credit limits;
    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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