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Economic Brief

July 2014, No. 14-07

Should the Fed Do Emergency Lending?

Renee Haltom and Jeffrey M. Lacker

In its 100-year history, many of the Federal Reserve's actions in the name of financial stability have come through emergency lending once financial crises are underway. It is not obvious that the Fed should be involved in emergency lending, however, since expectations of such lending can increase the likelihood of crises. Arguments in favor of this role often misread history. Instead, history and experience suggest that the Fed's balance sheet activities should be restricted to the conduct of monetary policy.

Additional Resources

Bernanke, Ben S., "The Federal Reserve's Balance Sheet: An Update," Speech at the Federal Reserve Board Conference on Key Developments in Monetary Policy, Washington, D.C., October 8, 2009.

Bernanke, Ben S., "Some Reflections on the Crisis and the Policy Response," Speech at the Russell Sage Foundation and the Century Foundation Conference on "Rethinking Finance," New York, April 13, 2012.

Essays about the Great Depression era, Federal Reserve History

Goodfriend, Marvin, "The Elusive Promise of Independent Central Banking," Monetary and Economic Studies, November 2012, vol. 30, pp. 39-54.

Goodfriend, Marvin, and Robert G. King, "Financial Deregulation, Monetary Policy, and Central Banking," Federal Reserve Bank of Richmond Economic Review, May/June 1988, pp. 3-22.

Haltom, Renee, and Jeffrey M. Lacker, "Should the Fed Have a Financial Stability Mandate? Lessons From the Fed's First 100 Years," Federal Reserve Bank of Richmond 2013 Annual Report, pp. 4-25.

Humphrey, Thomas M., "Lender of Last Resort: What It Is, Whence It Came, and Why the Fed Isn't It," Cato Journal, Spring/Summer 2010, vol. 30, no. 2, pp. 333-364.

Lacker, Jeffrey M., "The Path to Financial Stability," Speech to the Stanford Institute for Economic Policy Research at Stanford University, Stanford, Calif., February 11, 2014.

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