L Street: Bagehotian Prescriptions for a 21st-Century Money Market

35 Pages Posted: 31 May 2012

See all articles by George Selgin

George Selgin

The Cato Institute; University of Georgia

Multiple version iconThere are 2 versions of this paper

Date Written: December 8, 2011


In Lombard Street Walter Bagehot offered some second-best suggestions, informed by the crisis of 1866, for reforming the Bank of England’s conduct during financial crises. Here I respond to the crisis of 2008 by proposing changes, in the spirit of Bagehot’s own, to the Federal Reserve’s operating framework. These changes are aimed at reducing the Fed’s interference with the efficient allocation of credit, as well as its temptation to treat certain financial institutions as Too Big to Fail, during crises. More fundamentally, they seek to ground Fed operations more firmly in the rule of law, and to thereby make them less subject to the whims of committees, by allowing a fixed but flexible operating framework to serve the Fed’s needs during financial crises as well as in normal times.

Keywords: Walter Bagehot, Lender of Last Resort, Open-Market Operations, Primary Dealers, Treasuries Only

JEL Classification: E58, G01

Suggested Citation

Selgin, George, L Street: Bagehotian Prescriptions for a 21st-Century Money Market (December 8, 2011). Cato Journal, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1959602 or http://dx.doi.org/10.2139/ssrn.1959602

George Selgin (Contact Author)

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