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Stabilising financial markets: lending and market making as a last resort

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  • Buiter, Willem
  • Cecchetti, Stephen
  • Dominguez, Kathryn
  • Sánchez Serrano, Antonio

Abstract

This report looks backwards to the worldwide use of (enhanced) lender of last resort (LOLR) and market maker of last resort (MMLR) facilities during the global financial and the pandemic crises. It discusses how LOLR and MMLR facilities have worked; looking ahead, it considers what benefits and costs they could generate if authorities felt compelled to use them. Based on this analysis, the report presents a set of desirable attributes for an effective enhanced LOLR and MMLR and identifies two avenues for future macroprudential work. First, there is a strong need for an agreed taxonomy for determining which markets are systemic. And second, there is a need for a better understanding of how to structure facilities to mitigate moral hazard.

Suggested Citation

  • Buiter, Willem & Cecchetti, Stephen & Dominguez, Kathryn & Sánchez Serrano, Antonio, 2023. "Stabilising financial markets: lending and market making as a last resort," Report of the Advisory Scientific Committee 13, European Systemic Risk Board.
    • Handle: RePEc:srk:srkasc:202313
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    File URL: https://www.esrb.europa.eu//pub/pdf/asc/esrb.ascreport202301_stabilisingfinancialmarkets~3864d5226b.en.pdf
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    Cited by:

    1. Breckenfelder, Johannes & Hoerova, Marie, 2023. "Navigating liquidity crises in non-banks: An assessment of central bank policies," Research Bulletin, European Central Bank, vol. 108.
    2. Fauvrelle, Thiago & Riedel, Max & Skrutkowski, Mathias, 2024. "Collateral pledgeability and asset manager portfolio choices during redemption waves," SAFE Working Paper Series 417, Leibniz Institute for Financial Research SAFE.
    3. Thiago Fauvrelle & Mathias Skrutkowski, 2023. "Collateral pledgeability and asset manager portfolio choices during redemption waves," Working Papers 58, European Stability Mechanism, revised 12 Dec 2023.
    4. Breckenfelder, Johannes & Hoerova, Marie, 2023. "Do non-banks need access to the lender of last resort? Evidence from fund runs," CEPR Discussion Papers 18122, C.E.P.R. Discussion Papers.

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