Bagehot for Beginners: The Making of Lender‐of‐Last‐Resort Operations in the Mid‐Nineteenth Century

29 Pages Posted: 21 Apr 2012

See all articles by Vincent Bignon

Vincent Bignon

Banque de France

Marc Flandreau

Centre for Economic Policy Research (CEPR)

Stefano Ugolini

University of Toulouse 1 - Laboratoire d'Etudes et de Recherches sur l'Économie, les Politiques et les Systèmes Sociaux (LEREPS)

Date Written: May 2012

Abstract

In this article we develop new tools to survey the development of lending‐of‐last‐resort operations in the mid‐nineteenth century. One finding is that free lending and extensive liquidity support against good collateral developed gradually after 1847, and was already a fact of life before Bagehot published Lombard Street. Another is that the extension of the Bank of England's lender‐of‐last‐resort function went along with a reduction of its exposure to default risks, in contrast with accounts that have associated lending of last resort with moral hazard. Finally, we provide a new interpretation of the ‘high rates’ advocated by Bagehot. We suggest they were meant to prevent banks from free‐riding on the safety offered by the central bank, and were aimed at forcing them to keep lending during crises so as to maintain a critical degree of liquidity in the money market.

Suggested Citation

Bignon, Vincent and Flandreau, Marc and Ugolini, Stefano, Bagehot for Beginners: The Making of Lender‐of‐Last‐Resort Operations in the Mid‐Nineteenth Century (May 2012). The Economic History Review, Vol. 65, Issue 2, pp. 580-608, 2012. Available at SSRN: https://ssrn.com/abstract=2043416 or http://dx.doi.org/10.1111/j.1468-0289.2011.00606.x

Vincent Bignon

Banque de France ( email )

DGEI 49-1430
31 rue Croix des Petits Champs
Paris, 75001
France
+33142924330 (Phone)

Marc Flandreau

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Stefano Ugolini

University of Toulouse 1 - Laboratoire d'Etudes et de Recherches sur l'Économie, les Politiques et les Systèmes Sociaux (LEREPS) ( email )

21, Allée de Brienne
Toulouse, 31042
France

Register to save articles to
your library

Register

Paper statistics

Downloads
1
Abstract Views
751
PlumX Metrics