Central Banks as Lenders of Last Resort: Experiences During the 2007-10 Crisis and Lessons for the Future

33 Pages Posted: 8 Oct 2014

See all articles by Dietrich Domanski

Dietrich Domanski

Bank for International Settlements (BIS)

Richhild Moessner

Bank for International Settlements (BIS)

William R. Nelson

Board of Governors of the Federal Reserve System

Date Written: September 2014

Abstract

During the 2007-10 financial crisis, central banks accumulated a vast amount of experience in acting as lenders of last resort. This paper reviews the various ways that central banks provided emergency liquidity assistance (ELA) during the crisis, and discusses issues for the design of ELA arising from that experience. In a number of ways, the ELA since 2007 has largely adhered to Bagehot's dictum of lending freely at a penalty rate to solvent institutions against good collateral. But there were many exceptions to these principles. Those exceptions illuminate the situations where the lender of last resort role of central banks is most difficult. They also highlight key challenges in designing lender of last resort policies going forward.

Full publication: Re-Thinking the Lender of Last Resort

Keywords: Banking crisis, central bank liquidity, lender of last resort

JEL Classification: E58, F31, N1

Suggested Citation

Domanski, Dietrich and Moessner, Richhild and Nelson, William Richard, Central Banks as Lenders of Last Resort: Experiences During the 2007-10 Crisis and Lessons for the Future (September 2014). BIS Paper No. 79c. Available at SSRN: https://ssrn.com/abstract=2504657

Dietrich Domanski (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Richhild Moessner

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

William Richard Nelson

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
116
Abstract Views
776
rank
238,858
PlumX Metrics