Working Paper: NBER ID: w3011
Authors: Michael D. Bordo
Abstract: This paper discusses the role for a lender of last resort (LLR) in preventing banking panics (section I) , then briefly considers classical and more recent concepts of the LLR (section II). Section III examines historical evidence for the U.S. and other countries on the incidence of banking panics and LLR actions, and the record of alternative LLR arrangements in the U.S., Scotland and Canada, as well as the historical record on ailouts. Section IV offers some lessons from history.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| LLR actions (K20) | banking stability (F65) |
| LLR provides liquidity to solvent banks (G33) | prevents widespread banking failure (G28) |
| absence of effective LLR (K49) | severe banking panics (E44) |
| timely LLR actions (G33) | stabilize banking system during distress (G28) |
| banking panics arise from bank failures (F65) | loss of confidence among depositors (F65) |
| LLR's provision of high-powered money (E51) | alleviates panic (H84) |