Who Should Act as Lender of Last Resort? An Incomplete Contracts Model

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Who Should Act as Lender of Last Resort? An Incomplete Contracts Model

Author Info

Repullo, Rafael

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Rafael Repullo

Abstract

This paper presents a model of a bank subject to liquidity shocks that require borrowing from a lender of last resort. Two government agencies may perform this function: a central bank and a deposit insurance corporation. The agencies share supervisory information, which provides a nonverifiable signal of the bank's financial condition, and use it to decide whether to support it. It is shown that the optimal institutional design involves the two agencies: the central bank dealing with small liquidity shocks, and the deposit insurance corporation with large shocks. Furthermore, except for very small shocks, they should lend at penalty rates.

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Publisher Info
Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 32 (2000)
Issue (Month): 3 (August)
Pages: 580-605
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Handle: RePEc:mcb:jmoncb:v:32:y:2000:i:3:p:580-605

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Other versions of this item:

Article
- Rafael Repullo, 2000. "Who should act as lender of last resort? an incomplete contracts model," Proceedings, Federal Reserve Bank of Cleveland, pages 580-610.
Paper
- Repullo, R., 1999. "Who Should Act as Lender of Last Resort? An Incomplete Contracts Model," Papers 9913, Centro de Estudios Monetarios Y Financieros-.

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Antoine Martin, 2001. "Liquidity provision vs. deposit insurance : preventing bank panics without moral hazard?," Research Working Paper RWP 01-05, Federal Reserve Bank of Kansas City. [Downloadable!]
Other versions:
- Antoine Martin, 2006. "Liquidity provision vs. deposit insurance: preventing bank panics without moral hazard," Economic Theory, Springer, vol. 28(1), pages 197-211, 05. [Downloadable!] (restricted)
Antoine Martin, 2008. "Reconciling Bagehot with the Fed's response to September 11," Staff Reports 217, Federal Reserve Bank of New York. [Downloadable!]
Claeys, Sophie & Schoors, Koen, 2007. "Bank supervision Russian style: Evidence of conflicts between micro- and macroprudential concerns," Working Paper Series 205, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
Other versions:
- Claeys, Sophie & Schoors, Koen, 2007. "Bank supervision Russian style: Evidence of conflicts between micro- and macro-prudential concerns," Journal of Comparative Economics, Elsevier, vol. 35(3), pages 630-657, September. [Downloadable!] (restricted)
Repullo, Rafael, 2003. "Capital Requirements, Market Power and Risk-Taking in Banking," CEPR Discussion Papers 3721, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Other versions:
- Repullo, Rafael, 2004. "Capital requirements, market power, and risk-taking in banking," Journal of Financial Intermediation, Elsevier, vol. 13(2), pages 156-182, April. [Downloadable!] (restricted)
- Rafael Repullo, 2002. "Capital requirements, market power, and risk-taking in banking," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 150-163.
Silvia Marchesi & Laura Sabani, 2005. "IMF concern for reputation and conditional lending failure: theory and empirics," Department of Economics University of Siena 447, Department of Economics, University of Siena. [Downloadable!]
Other versions:
- Silvia Marchesi & Laura Sabani, . "IMF Concern for Reputation and Conditional Lending Failure: Theory and Empirics," Development Working Papers 206, Centro Studi Luca d\'Agliano, University of Milano. [Downloadable!]
- Silvia Marchesi & Laura Sabani, 2005. "IMF concern for reputation and conditional lending failure: theory and empirics," FMG Discussion Papers dp535, Financial Markets Group. [Downloadable!] (restricted)
- Silvia Marchesi & Laura Sabani, 2007. "IMF concern for reputation and conditional lending failure: theory and empirics," Working Papers 114, University of Milano-Bicocca, Department of Economics, revised 2007. [Downloadable!]
- Marchesi, Silvia & Sabani, Laura, 2007. "IMF concern for reputation and conditional lending failure: Theory and empirics," Journal of Development Economics, Elsevier, vol. 84(2), pages 640-666, November. [Downloadable!] (restricted)
Repullo, Rafael, 2005. "Liquidity, Risk-Taking and the Lender of Last Resort," CEPR Discussion Papers 4967, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Other versions:
- Rafael Repullo, 2005. "Liquidity, Risk-Taking, And The Lender Of Last Resort," Working Papers wp2005_0504, CEMFI. [Downloadable!]
- Repullo, Rafael, 2005. "Liquidity, Risk Taking, and the Lender of Last Resort," MPRA Paper 826, University Library of Munich, Germany. [Downloadable!]
- Rafael Repullo, 2005. "Liquidity, Risk Taking, and the Lender of Last Resort," International Journal of Central Banking, International Journal of Central Banking, vol. 1(2), September. [Downloadable!]
Erlenmaier, Ulrich & Gersbach, Hans, 2001. "The Funds Concentration Effect and Discriminatory Bailout," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
Rafael Repullo, 2004. "Policies For Banking Crises: A Theoretical Framework," Working Papers wp2004_0418, CEMFI. [Downloadable!]
Other versions:
- Repullo, Rafael, 2004. "Policies for Banking Crises: A Theoretical Framework," CEPR Discussion Papers 4727, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Claeys, Sophie, 2005. "Optimal regulatory design for the Central Bank of Russia," BOFIT Discussion Papers 7/2005, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
Rafael Repullo, 2000. "Takeovers of Foreign Banks: A Supervisory Perspective," Econometric Society World Congress 2000 Contributed Papers 1813, Econometric Society. [Downloadable!]
Donato Masciandaro & María J. Nieto & Henriëtte Prast, 2007. "Financial governance of banking supervision," Banco de EspaÃ±a Working Papers 0725, Banco de España. [Downloadable!]
FREIXAS, Xavier & PARIGI, Bruno & ROCHET, Jean-Charles, 2003. "The Lender of Last Resort: A 21th Century Approach," IDEI Working Papers 215, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
Other versions:
- Xavier Freixas & Bruno M. Parigi & Jean-Charles Rochet, 2003. "The Lender of Last Resort: A 21st Century Approach," Economics Working Papers 708, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
- Xavier Freixas & Bruno M. Parigi & Jean-Charles Rochet, 2003. "The lender of last resort - a 21st century approach," Working Paper Series 298, European Central Bank. [Downloadable!]
Sophie Claeys, & Gleb Lanine & Koen Schoors, 2005. "Bank Supervision Russian style: Rules versus Enforcement and Tacit Objectives," William Davidson Institute Working Papers Series wp778, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
Other versions:
- Claeys, Sophie & Lanine, Gleb & Schoors, Koen, 2005. "Bank supervision Russian style: Rules versus enforcement and tacit objectives," BOFIT Discussion Papers 10/2005, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
Klüh, Ulrich, 2005. "Safety Net Design and Systemic Risk: New Empirical Evidence," Discussion Papers in Economics 662, University of Munich, Department of Economics. [Downloadable!]
Donato Masciandaro & Maria Nieto & Henriette Prast, 2007. "Who pays for banking supervision? Principles and practices," DNB Working Papers 141, Netherlands Central Bank, Research Department. [Downloadable!]
David R. Skeie, 2008. "Banking with nominal deposits and inside money," Staff Reports 242, Federal Reserve Bank of New York. [Downloadable!]
Antoine Martin, 2002. "Reconciling Bagehot with the Fed's response to Sept. 11," Research Working Paper RWP 02-10, Federal Reserve Bank of Kansas City. [Downloadable!]
Xavier Freixas & Anthony M. Santomero, 2002. "An overall perspective on banking regulation," Working Papers 02-1, Federal Reserve Bank of Philadelphia. [Downloadable!]
S. CLAEYS & G. LANINE & K. SCHOORs, 2005. "Bank Supervision Russian Style: Rules vs Enforcement and Tacit Objectives," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/307, Ghent University, Faculty of Economics and Business Administration. [Downloadable!]
Nancy Silva, 2008. "Deposit Insurance, Moral Hazard and the Risk of Runs," Working Papers Central Bank of Chile 474, Central Bank of Chile. [Downloadable!]

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