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Solutions to the Moral Hazard Problem Arising from the Lender-of-Last-Resort Facility

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  • Moore, Gregory
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    Abstract

    The provision of liquid funds via a lender-of-last-resort facility has been the chief means by which governments have chosen to prevent or stay bank runs. The introduction of such a facility, however, leads to a moral hazard problem which weakens each financial manager's commitment to sound banking, and hence may ultimately make the few bank runs which do occur more dramatic in both size and seriousness. In this paper I provide a survey of the various policy measures which have been proposed to mitigate the effects of the moral hazard problem arising from the introduction of a lender-of-last-resort facility. Copyright 1999 by Blackwell Publishers Ltd

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Journal of Economic Surveys.

    Volume (Year): 13 (1999)
    Issue (Month): 4 (September)
    Pages: 443-76

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    Handle: RePEc:bla:jecsur:v:13:y:1999:i:4:p:443-76

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    Cited by:
    1. Alberto Zazzaro, 2001. "Specificità e modelli di governo delle banche: un' analisi degli assetti proprietari dei gruppi bancari italiani," Moneta e Credito, Economia civile, vol. 54(216), pages 487-517.
    2. Bryan Fitz-Gibbon & Marianne Gizycki, 2001. "A History of Last-resort Lending and Other Support for Troubled Financial Institutions in Australia," RBA Research Discussion Papers rdp2001-07, Reserve Bank of Australia.

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