Bagehot for Beginners: The Making of Lending of Last Resort Operations in the Mid-Nineteenth Century

Ugolini, Stefano, Bignon, Vincent and Flandreau, Marc (2012) Bagehot for Beginners: The Making of Lending of Last Resort Operations in the Mid-Nineteenth Century. The Economic History Review, 65 (2). pp. 580-608.

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Abstract

In this article we develop new tools to survey the development of lending-of-last-resort operations in the mid-nineteenth century. One finding is that free lending and extensive liquidity support against good collateral developed gradually after 1847, and was already a fact of life before Bagehot published Lombard Street. Another is that the extension of the Bank of England's lender-of-last-resort function went along with a reduction of its exposure to default risks, in contrast with accounts that have associated lending of last resort with moral hazard. Finally, we provide a new interpretation of the ‘high rates’ advocated by Bagehot. We suggest they were meant to prevent banks from free-riding on the safety offered by the central bank, and were aimed at forcing them to keep lending during crises so as to maintain a critical degree of liquidity in the money market.

Item Type: Article
Language: English
Date: 2012
Refereed: Yes
JEL codes: A1 - General Economics
Subjects: B- ECONOMIE ET FINANCE > B1- Généralités
Divisions: Laboratoire d'études et de recherches sur l'économie, les politiques et les systèmes sociaux - LEREPS
Site: IEP
Date Deposited: 23 Jan 2013 14:17
Last Modified: 26 May 2016 16:18
URI: http://publications.sciencespo-toulouse.fr/id/eprint/10292

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