Floating a "Lifeboat": The Banque De France and the Crisis of 1889

45 Pages Posted: 6 May 2014 Last revised: 17 May 2021

See all articles by Pierre Cyrille Hautcoeur

Pierre Cyrille Hautcoeur

Paris School of Economics (PSE)

Angelo Riva

European Business School Paris

Eugene N. White

Rutgers, The State University of New Jersey

Date Written: May 2014

Abstract

When faced with a run on a "systemically important" but insolvent bank in 1889, the Banque de France pre-emptively organized a lifeboat to ensure that depositors were protected and an orderly liquidation could proceed. To protect the Banque from losses on its lifeboat loan, a guarantee syndicate was formed, penalizing those who had participated in the copper speculation that had caused the crisis bringing the bank down. Creation of the syndicate and other actions were consistent with mitigating the moral hazard from such an intervention. This episode contrasts the advice given by Bagehot to the Bank of England to counter a panic by lending freely at a high rate on good collateral, allowing insolvent institutions to fail.

Suggested Citation

Hautcoeur, Pierre Cyrille and Riva, Angelo and White, Eugene N., Floating a "Lifeboat": The Banque De France and the Crisis of 1889 (May 2014). NBER Working Paper No. w20083, Available at SSRN: https://ssrn.com/abstract=2432827

Pierre Cyrille Hautcoeur (Contact Author)

Paris School of Economics (PSE) ( email )

48 bd JOURDAN
Paris, 75014 75014
France

Angelo Riva

European Business School Paris ( email )

37/39 Boulevard Murat
Paris, 75016
France

Eugene N. White

Rutgers, The State University of New Jersey ( email )

311 North 5th Street
New Brunswick, NJ 08854
United States

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