Managing Stigma During a Financial Crisis
57 Pages Posted: 5 Sep 2015 Last revised: 21 Dec 2016
Date Written: December 20, 2016
How should regulators design effective emergency lending facilities to mitigate stigma during a financial crisis? I explore this question using data from an unexpected disclosure of partial lists of banks that secretly borrowed from the lender of last resort during the Great Depression. I find evidence of stigma in that depositors withdrew more deposits from banks included on the lists in comparison with banks left off the lists. However, stigma dissipated for banks that were revealed earlier after subsequent banks were revealed. Overall, the results suggest that an emergency lending facility that never reveals bank identities would mitigate stigma.
Keywords: stigma, financial crisis, lender of last resort, Federal Reserve
JEL Classification: G01, G21, G28
Suggested Citation: Suggested Citation