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Article: Limited Commitment and Central Bank Lending.
- Article from:
- Economic Quarterly
- Article date:
- September 22, 1999
- Author:
CopyrightCOPYRIGHT 1999 Federal Reserve Bank of Richmond. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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Central bank lending is widely regarded as a vital part of the public safety net supporting the stability of the banking system and financial markets. An independent central bank can provide liquidity to financial institutions on very short notice. [1] Indeed, central bank lending has been a prominent part of regulatory assistance to troubled financial institutions in recent years. The idea of a central bank as lender of last resort, however, has been around at least since Walter Bagehot wrote about it over 100 years ago. [2]
For most of that time it was taken for granted that central bank lending had benefits with little or no cost. In the past decade, that view ...