Optimal lender of last resort policy in different financial systems

  • In a framework closely related to Diamond and Rajan (2001) we characterize different financial systems and analyze the welfare implications of different LOLR-policies in these financial systems. We show that in a bank-dominated financial system it is less likely that a LOLR-policy that follows the Bagehot rules is preferable. In financial systems with rather illiquid assets a discretionary individual liquidity assistance might be welfare improving, while in market-based financial systems, with rather liquid assets in the banks' balance sheets, emergency liquidity assistance provided freely to the market at a penalty rate is likely to be efficient. Thus, a "one size fits all"-approach that does not take the differences of financial systems into account is misguiding. JEL - Klassifikation: D52 , E44 , G21 , E52 , E58

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Author:Falko FechtORCiDGND, Marcel TyrellGND
Parent Title (German):Deutsche Bundesbank: [Discussion paper / 1] Discussion paper : Ser. 1, Economic studies ; No. 2004,39
Document Type:Working Paper
Year of Completion:2004
Year of first Publication:2004
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2005/10/06
Tag:Lender of Last Resort / Finanzmarkt / Wirtschaftspolitische Wirkungsanalyse
Comparing Financial Systems; Financial Crises; Lender of Last Resort
Page Number:48
Source:Discussion paper Series 1 / Volkswirtschaftliches Forschungszentrum der Deutschen Bundesbank ; 2004,39
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht