Ben Bernanke and Bagehot's Rules

Hogan, Thomas L.; Le, Linh; Salter, Alexander William

doi:10.1111/jmcb.12178

Cited by 45 publications

(13 citation statements)

References 18 publications

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“…Martin 2009). As a result, in recent episodes of crisis lending, central bankers happened to do the very opposite of what Bagehot had prescribed concerning interest rates (Hogan et al 2015).…”

Section: The Varying Liquidity Indemnity: Vindicating Bagehot?mentioning

confidence: 97%

Moral hazard and lending of last resort

Ugolini¹

2021

Moral Hazard

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On the very eve of the United Kingdom's departure from the European Union in February 2020, a YouGov poll found that the majority of Scottish voters had now shifted in favour of independence, yet by far the most popular reason advocated in favour of remaining in the UK was that "if Scotland faced financial problems, the UK would have the resources to help". 1 To all likelihood, behind this preoccupation stood the memory of the dramatic 2008 bailouts by the UK government of Scotland's two banking behemoths, Royal Bank of Scotland (RBS) and Halifax Bank of Scotland (HBOS); and in fact, on the eve of the 2014 referendum, RBS had explicitly threatened to leave an independent Scotland. 2 Banks' threat to move their headquarters from an independence-seeking region in order to secure the assistance of public authorities is not specific to Scotland -Québec 3 and Catalonia 4 also experienced the same fate.Yet, a priori, should not the chance of no longer having to potentially implement very costly interventions to support ailing banks be a reason in favour of independence rather than against it? This paradox shows to what extent the principle of unconditional support to unsound financial institutions has become deeply-rooted in public opinion in our times. But is this strict association between liquidity assistance and financial misbehaviour really inevitable? How did we get there? And is not there any alternative available? In order to shed light on these questions, this chapter will reconstruct the genesis of the debate on the relationship between lending of last resort and moral hazard, and will track the historical evolution of the monetary practices aimed to assist the banking sector in times of emergency.The modern literature has often tended to conflate the two forms of ex-post intervention to ensure financial stabilityviz. lending of last resort (assistance to illiquid but solvent intermediaries) and bailouts (assistance to illiquid and insolvent intermediaries)in view of the fact that illiquidity and insolvency may not be separable phenomena (see e.g. Goodhart 1999). Despite the actual inseparability of illiquidity and insolvency, however, lending of last resort and bailouts arguably remain different kinds of policieslending of last resort being a rule-based intervention, while bailouts being a discretionary one. The question of the relationship between bailouts and moral hazard is, per se, hardly an interesting one, as the literature has universally acknowledged bailouts to be highly conducive to moral hazard. That is why this chapter will only focus on the subtler and more controversial question of the moral 1 https://yougov.co.uk/topics/politics/articles-reports/2020/01/30/scottish-independence-yes-leads-remainersincreasi 2 https://www.theguardian.com/business/2014/sep/11/rbs-will-leave-scotland-yes-vote 3 https://www.ft.com/content/7ba064e4-3a61-11e4-bd08-00144feabdc0 4 https://www.ft.com/content/daada4cc-a9b4-11e7-93c5-648314d2c72c

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Section: The Varying Liquidity Indemnity: Vindicating Bagehot?mentioning

confidence: 97%

Moral hazard and lending of last resort

Ugolini¹

2021

Moral Hazard

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“…Without a more explicit statement from the Federal Open Market Committee, the outstanding question concerns the rule governing the Federal Reserve's interest rate policy. 4 The related literature on the liquidity facilities granted to the commercial banks, for instance through the Term Auction Facility programme, has documented that the Federal Reserve did not strictly practice the rule of the penalty interest rate (Hogan, Le, and Salter, 2015). However, the literature on the Dollar Swap Line programme has not analysed the Federal Reserve's guidelines in depth.…”

Section: The Federal Reserve and The European Central Bankmentioning

confidence: 99%

The Federal Reserve’s Dollar Swap Lines and the European Central Bank during the global financial crisis of 2007–09

Carré¹,

Maux

2020

Cambridge Journal of Economics

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Abstract Although the literature has studied the role of the Federal Reserve as the global lender of last resort in 2007–09, many aspects of the Dollar Swap Lines to the European Central Bank need further exploration. Accordingly, we provide original evidence about the auction operations, allotted amounts and interest rates with regard to the Federal Reserve’s dollar swaps and the European Central Bank’s dollar provision. More specifically, we examine the demand side of the Dollar Swap Lines (whereas the existing literature mentions the supply side only) and we scrutinise the interest rate (whereas the literature concentrates on volumes) set by the Federal Reserve, and also the rate set by the European Central Bank. Our findings cast light on the nature of the relationship between the Federal Reserve and the European Central Bank. Finally, we contribute to the literature on the global lender of last resort by coining the notion of the financial dilemma, under the dollar system within a framework of globalised financial markets.

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“…We rely on Humphrey's interpretations, which are not without controversy. See also Bordo (2014); Haltom andLacker (2014, 2015); Hogan, Le, and Salter (2015); and Laidler (2003b) for further and possibly differing interpretations, and Mehrling (2011Mehrling ( , 2014 for an analysis of how Bagehot's prescriptions can and should be modified to suit the current institutional context. The second role of financial stability policy -for the central bank to act as market maker of last resort or, in the parlance of Mehrling (2014), dealer of last resort -is similar to that of the central bank as lender of last resort.…”

Section: Lender and Market Maker Of Last Resortmentioning

confidence: 99%

Navigating Turbulence: Canadian Monetary Policy Since 2004

Ambler

Kronick²

2018

SSRN Journal

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Two Percent Target, the Institute has a long tradition of chronicling Canadian monetary policy. We trust that Steve Ambler and Jeremy Kronick's contribution will be a valued resource to experts, students, and any Canadians interested in how their central bank affects their economy for years to come. While the analysis and opinions presented here are the responsibility of its authors, and do not necessarily represent the views of the Institute's members or Board of Directors, this book exemplifies the C. D. Howe Institute's mission to foster informed discussion on key economic policy topics through sound analysis and careful empirical research.

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Ben Bernanke and Bagehot's Rules

Cited by 45 publications

References 18 publications

Moral hazard and lending of last resort

Moral hazard and lending of last resort

The Federal Reserve’s Dollar Swap Lines and the European Central Bank during the global financial crisis of 2007–09

Navigating Turbulence: Canadian Monetary Policy Since 2004

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