Advanced Search
MyIDEAS: Login to save this paper or follow this series

A Model of the Lender of Last Resort


Author Info

  • Haizhou Huang
  • Charles Goodhart



This paper develops a model of the lender of last resort (LOLR). In a simple one-period setting, the Central Bank (CB) should only rescue banks which are above a threshold size, thus providing an analytical basis for ¶too big to fail¶. In a dynamic setting, the CBs optimal LOLR policy is time varying and contingent on the probabilities and effects of failure and of the likelihood of a bank requiring LOLR being insolvent. If contagion is the main concern, then the CB in general would have an excessive incentive to rescue especially large banks. If moral hazard is the main concern, the CB in general would have little incentive to rescue banks. When both contagion and moral hazard are jointly analyzed, then the CBs incentive to rescue are stronger than in the single period setting, but weaker than in the dynamic setting with contagion alone.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL:
Download Restriction: no

Bibliographic Info

Paper provided by Financial Markets Group in its series FMG Discussion Papers with number dp313.

as in new window
Date of creation: Jan 1999
Date of revision:
Handle: RePEc:fmg:fmgdps:dp313

Contact details of provider:
Web page:

Related research


Other versions of this item:


No references listed on IDEAS
You can help add them by filling out this form.


Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.


This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.


Access and download statistics


When requesting a correction, please mention this item's handle: RePEc:fmg:fmgdps:dp313. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (The FMG Administration).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.