Advanced Search
MyIDEAS: Login

A History of Last-resort Lending and Other Support for Troubled Financial Institutions in Australia

Contents:

Author Info

  • Bryan Fitz-Gibbon

    (Reserve Bank of Australia)

  • Marianne Gizycki

    (Reserve Bank of Australia)

Registered author(s):

    Abstract

    This paper surveys the history of last-resort lending and other support provided to financial institutions in Australia and compares the practical implementation of lender-of-last-resort policy with policy prescriptions derived from the theoretical literature. Last-resort support serves to counter the market failures that can see fundamentally sound financial institutions fail due to a lack of liquidity, and to protect the economy from the systemic costs of such failures. The provision of lender-of-last-resort support, however, creates moral hazard costs. During the nineteenth century, Australian colonial governments and banking industry groups provided support to troubled financial institutions in a variety of ways that reflected both the resources they could draw on and their ability to constrain moral hazard behaviour. Since 1900, Australia’s experience has been unusual by international standards: the central bank has rarely acted as a lender of last resort; and, despite this, virtually no Australian bank depositor has lost money. Direct loans were provided only twice: once as a last-resort loan and once to ease the exit of a failed bank. Instead, support has come in more indirect forms. Loans were provided to three banks in support of their efforts to provide funds to illiquid building societies. Most instances of disruptions to financial institutions’ access to liquidity, however, have been successfully staunched by the central bank’s issuance of reassuring public statements.

    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: http://www.rba.gov.au/publications/rdp/2001/pdf/rdp2001-07.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp2001-07.

    as in new window
    Length:
    Date of creation: Oct 2001
    Date of revision:
    Handle: RePEc:rba:rbardp:rdp2001-07

    Contact details of provider:
    Postal: GPO Box 3947, Sydney NSW 2001
    Phone: 61-2-9551-8111
    Fax: 61-2-9551-8000
    Email:
    Web page: http://www.rba.gov.au/
    More information through EDIRC

    Order Information:
    Web: http://www.rba.gov.au/forms/rdp-order-form/

    Related research

    Keywords: Australia; banking history; lender of last resort;

    Find related papers by JEL classification:

    References

    References listed on IDEAS
    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.:
    as in new window
    1. Fama, Eugene F., 1985. "What's different about banks?," Journal of Monetary Economics, Elsevier, vol. 15(1), pages 29-39, January.
    2. Frederic S. Mishkin, 1999. "Financial Consolidation: Dangers and Opportunities," NBER Working Papers 6655, National Bureau of Economic Research, Inc.
    3. Selgin, George A & White, Lawrence H, 1987. "The Evaluation of a Free Banking System," Economic Inquiry, Western Economic Association International, vol. 25(3), pages 439-57, July.
    4. Chay Fisher & Christopher Kent, 1999. "Two Depressions, One Banking Collapse," RBA Research Discussion Papers rdp1999-06, Reserve Bank of Australia.
    5. Dowd, Kevin, 1992. " Models of Banking Instability: A Partial Review of the Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 6(2), pages 107-32.
    6. Moore, Gregory, 1999. " Solutions to the Moral Hazard Problem Arising from the Lender-of-Last-Resort Facility," Journal of Economic Surveys, Wiley Blackwell, vol. 13(4), pages 443-76, September.
    7. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
    8. Jean-Charles Rochet & Jean Tirole, 1996. "Interbank lending and systemic risk," Proceedings, Board of Governors of the Federal Reserve System (U.S.), pages 733-765.
    9. D.T. Merrett, 1991. "FINANCIAL INSTITUTIONS UNDER PRESSURE: ARE THE RIGHT LESSONS BEING LEARNT FROM THE 1890s?," Economic Papers, The Economic Society of Australia, vol. 10(1), pages 1-10, 03.
    Full references (including those not matched with items on IDEAS)

    Citations

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

    Cited by:
    1. Jonathan Kearns & Philip Lowe, 2008. "Promoting Liquidity: Why and How?," RBA Annual Conference Volume, in: Paul Bloxham & Christopher Kent (ed.), Lessons from the Financial Turmoil of 2007 and 2008 Reserve Bank of Australia.

    Lists

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

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:rba:rbardp:rdp2001-07. 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: (Paula Drew).

    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.