Resource title

Optimal lender of last resort policy in different financial systems

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Resource description

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.

Resource author

Falko Fecht, Marcel Tyrell

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Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/19506

Resource license

Adapt according to the presented license agreement and reference the original author.