Vincent Bignon, Clemens Jobst, 30 April 2017

Data constraints have made it difficult to establish a causal link between the design of central bank eligibility frameworks and economic outcomes. In this column, the authors argue the series of non-agricultural economic crises in 19th century France caused by phylloxera – a disease that devastated vineyards in the country – allows the confounding factors that normally impede the investigation of lending of last resort policies to be disentangled. Regions that benefitted from easier access to central bank refinancing exhibited lower default rates, as firms could more easily smooth liquidity shocks. Importantly, the lower default rates were not the result of the central bank bailing out the private sector by buying up worthless assets.

Thomas Huertas, 21 April 2017

Central banks helped contain the Global Crisis using a policy of 'eligibility easing'. The policy expanded the collateral that could be used to access liquidity facilities and the range of counterparties that could request liquidity. This column argues that although eligibility easing successfully reduced the need for central banks to act as lender of last resort or to provide emergency liquidity assistance, the time has come to determine its future role as a macro-prudential tool.

Ulrich Bindseil, Luc Laeven, 13 January 2017

The scale and scope of central bank lender of last resort operations during the Global Crisis raised concerns that central banks may be taking excessive risks and supporting moral hazard. This column argues that criticism of such operations is misguided. In the crisis, central banks did not make financial losses when acting as lender of last resort, which shows that they have applied their frameworks with prudence. 

Charles Calomiris, Marc Flandreau, Luc Laeven, 19 September 2016

The Global Crisis has raised concerns over how far ‘lender of last resort’ policies by central banks should go. This column examines the history of the development of these policies throughout the world. Last resort lending is a locus of political power, and as such, its creation should be viewed as the outcome of a political bargain. It is therefore not surprising that countries differed in their propensity to create such policies, and in the powers with which they chose to endow them.

Paul De Grauwe, 07 September 2015

Economists were early critics of the design of the Eurozone, though many of their warnings went unheeded. This column discusses some fundamental design flaws, and how they have contributed to recent crises. National booms and busts lead to large external imbalances, and without individual lenders of last resort – national central banks – these cycles lead some members to experience liquidity crises that degenerated into solvency crises. One credible solution to these design failures is the formation of a political union, however member states are unlikely to find this appealing.

Ana-Maria Fuertes, Elena Kalotychou, Orkun Saka, 26 March 2015

Recent debt crises have brought the fragility of the Eurozone into focus. It has been argued that members are vulnerable to sudden changes in market sentiment. This column examines how debt markets reacted to an ECB announcement that it would serve as a lender of last resort, finding that recent debt crises have strong self-fulfilling dynamics.

Alberto Martin, Jaume Ventura, 05 July 2014

There is a widespread view among macroeconomists that fluctuations in collateral are an important driver of credit booms and busts. This column distinguishes between ‘fundamental’ collateral – backed by expectations of future profits – and ‘bubbly’ collateral – backed by expectations of future credit. Markets are generically unable to provide the optimal amount of bubbly collateral, which creates a natural role for stabilisation policies. A lender of last resort with the ability to tax and subsidise credit can design a ‘leaning against the wind’ policy that replicates the ‘optimal’ bubble allocation.

Pierre-Cyrille Hautcoeur, Angelo Riva, Eugene White, 02 July 2014

The key challenge for lenders of last resort is to ameliorate financial crises without encouraging excessive risk-taking. This column discusses the lessons from the Banque de France’s successful handling of the crisis of 1889. Recognising its systemic importance, the Banque provided an emergency loan to the insolvent Comptoir d’Escompte. Banks that shared responsibility for the crisis were forced to guarantee the losses, which were ultimately recouped by large fines – notably on the Comptoir’s board of directors. This appears to have reduced moral hazard – there were no financial crises in France for 25 years.

Ugo Panizza, 03 March 2013

Can we avoid delayed sovereign defaults? This column sketches out a flexible mechanism focused on the international lender, and competition between lenders, of last resort to ensure timeliness, transparency and larger sums than are currently available. The threat of competition should provide strong incentives for addressing imbalances in the governance of the main multilateral financial institutions

Charles Wyplosz, 30 July 2012

Financial markets once again pushed Eurozone leaders to act. European Central Bank President Draghi recently promised to “do whatever it takes”. This column argues that Draghi made an implicit commitment to act as lender of last resort to Eurozone governments. This means optimism may be justified – if only because it suggests that the Eurozone has a great central banker who is both a serious economist and an astute politician.

Mark Mink, 31 August 2011

While central bank liquidity support is used on a large scale to combat the instability of the banking sector, this column argues that the prospect of receiving such support might well have been one of the causes of the instability. In particular, it shows that the provision of liquidity support stimulates banks to engage in various forms of risk-taking, and to do so in a procyclical way.

Paul De Grauwe, 18 August 2011

With the Eurozone crisis casting doubt over the solvency of Spain and Italy, the ECB has once again intervened to provide liquidity in the government bond markets. This column asks the question: Is there such a role for the ECB as a lender of last resort?

Eduardo Levy Yeyati, Tito Cordella, 18 April 2010

Is the international-lender-of-last-resort IMF agenda passé? This column argues that the IMF could act as a “central bank swap clearing house” – an independent entity that manages existing and enhanced central bank swap agreements in one liquidity network for eligible countries and stands ready to step in with traditional programmes if liquidity fails.

Jorge Ponce, 16 January 2010

What government agency should decide lender-of-last-resort policy? This column discusses the optimal allocation of decision-making authority, suggesting that the central bank decide emergency loans and the deposit insurance agency guarantee them. But providing greater liquidity assistance will also require punishment to deter moral hazard problems.

Alejandro Izquierdo, Ernesto Talvi, 12 December 2009

In spite of its global nature, the current crisis dealt a much smaller blow to emerging markets than its predecessor, the Russian/Long-Term Capital Management crisis of 1998. Although stronger fundamentals are part of the explanation, this column argues that the readiness of the international community to provide lender of last resort facilities played a key role and has major implications for the design of a new international financial architecture.


SUERF/CEPS/BFF Conference followed by SUERF Annual Lecture 2009

Sessions on:

    Provision of liquidity and Lender of Last Resort operations: effectiveness, governance, cross-border and cross currency issues
    Cross-border bank resolution
    Deposit guarantee schemes: How to re-establish clients’ confidence
    Limits of the "Lender of Last Resort", "Too big to fail" and "Too big to save" theses

Followed by the 2009 SUERF Annual Lecture to be delivered by Jaime Caruana, General Manager, Bank for International Settlements

Participation free of charge for members of SUERF, CEPS and the Belgian Financial Forum, non-members EUR 100

Guillermo Calvo, Rudy Loo-Kung, 29 June 2009

The financial sector is prone to crises, which are typically associated with serious effects on output and employment. This column weighs the costs and benefits of financial deregulation that spurs temporarily high growth that then collapse and suggests that bubbles may be socially efficient.

Guillermo Calvo, 23 March 2009

Fiscal stimulus and financial regulation cannot restore credit availability. This column argues that we need a global lender of last resort to restore liquidity. In the short run, it presses for large liquidity facilities to protect emerging market economies from the risk of damaging sudden stops of capital inflows.

Xavier Freixas, Bruno Parigi, 22 December 2008

This column argues that the financial crisis of 2007 and 2008 redefines the functions of the lender of last resort, placing it at the intersection of monetary policy, supervision and regulation of the banking industry, and the organisation of the interbank market.

Eric Hughson, Marc Weidenmier, 28 November 2008

The current crisis raises serious questions about the role of a lender of last resort. This column provides historical insight into its importance. Such a lender is critical to containing crises, as demonstrated by the frequent autumn harvest financial crises in the US prior to the establishment of the Federal Reserve.