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| Tekijä: | Rochet, J.-C. Vives, X. |
| Otsikko: | Coordination failures and the lender of last resort: was Bagehot right after all? |
| Lehti: | Journal of the European Economic Association
2004 : DEC, VOL. 2:6, p. 1116-1147 |
| Asiasana: | central banks coordination economic shocks liquidity |
| Kieli: | eng |
| Tiivistelmä: | The classical doctrine of the Lender of Last Resort (LOLR), elaborated by Bagehot (1873) asserts that the central bank should lend to "illiquid but solvent" banks under certain conditions. Several authors have argued that this view is now obsolete: in modern interbank markets, a solvent bank cannot be illiquid. A possible theoretical foundation for rescuing Bagehot's view is provided in this article. The theory does not rely on the multiplicity of equilibria that arises in classical models of banks runs. A model of banks' liquidity crises that possesses a unique Bayesian equilibrium is built. In this equilibrium there is a positive probability that a solvent bank cannot find liquidity assistance in the market. Policy implications about banking regulation (solvency and liquidity ratios) and interventions of the Lender of Last Resort are derived. |
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