Lender of Last Resort: The Concept in History
Article
Lender of Last Resort: The Concept in History
Lender of Last Resort: The Concept in History
Lender of Last Resort: The Concept in History
Mar/Apr
1989
Lender of Last Resort: The Concept in History
Thomas M. Humphrey {thohum1}
<p>Henry Thornton (1760-1815) and Walter Bagehot (1826-1877) laid down a set of rules for stopping banking panics and crises. Known collectively as the classical theory of the lender of last resort, those rule stressed (1) protecting the aggregate money stock, not individual institutions, (2) letting insolvent institutions fail, (3) accommodating sound but temporarily illiquid institutions only, (4) charging penalty rates, (5) requiring good collateral, and (6) preannouncing these conditions in advance of crises so as to remove uncertainty. These precepts continue to inform central bank policy today.</p>
/RichmondFedOrg/publications/research/economic_review/1989/pdf/er750202.pdf
Monetary History
1
<p>Henry Thornton (1760-1815) and Walter Bagehot (1826-1877) laid down a set of rules for stopping banking panics and crises. Known collectively as the classical theory of the lender of last resort, those rule stressed (1) protecting the aggregate money stock, not individual institutions, (2) letting insolvent institutions fail, (3) accommodating sound but temporarily illiquid institutions only, (4) charging penalty rates, (5) requiring good collateral, and (6) preannouncing these conditions in advance of crises so as to remove uncertainty. These precepts continue to inform central bank policy today.</p>
Economic Review
Mar/Apr
1989