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Central Banking for Financial Stability: Some Lessons from the Recent Instability in the United States and Euro Area

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  • Wall, Larry D.

    (Asian Development Bank Institute)

Abstract

Central banks have had an important role in maintaining financial stability through their lender of last resort role. As lender of last resort, the central bank is given enormous power which is normally tempered by a variety of limits. In the most recent crises in both the United States and euro area, the Federal Reserve and European Central Bank (ECB) have come under enormous pressure to take lender of last resort actions that exceed these normal bounds. This paper reviews the experience of these two central banks and draws some implications for future policy.

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File URL: http://www.adbi.org/files/2012.08.31.wp379.central.banking.financial.stability.pdf
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Bibliographic Info

Paper provided by Asian Development Bank Institute in its series ADBI Working Papers with number 379.

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Length: 37 pages
Date of creation: 04 Sep 2012
Date of revision:
Handle: RePEc:ris:adbiwp:0379

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Keywords: central banking; financial stability; united states; euro area; federal reserve; european central bank;

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  1. Fumio Akiyoshi, 2009. "Banking panics, bank failures, and the lender of last resort: the Showa Depression of 1930--1932," Oxford Economic Papers, Oxford University Press, vol. 61(4), pages 776-800, October.
  2. Elisabeth Ledrut & Christian Upper, 2007. "Changing post-trading arrangements for OTC derivatives," BIS Quarterly Review, Bank for International Settlements, December.
  3. Larry Wall & Robert Eisenbeis, 1999. "Financial Regulatory Structure and the Resolution of Conflicting Goals," Journal of Financial Services Research, Springer, vol. 16(2), pages 223-245, December.
  4. Kristopher S. Gerardi & Andreas Lehnert & Shane M. Sherlund & Paul S. Willen, 2009. "Making sense of the subprime crisis," Working Paper 2009-02, Federal Reserve Bank of Atlanta.
  5. Kelly, Morgan, 2010. "Whatever Happened to Ireland?," CEPR Discussion Papers 7811, C.E.P.R. Discussion Papers.
  6. Larry D. Wall, 2010. "Prudential discipline for financial firms: micro, macro, and market structures," Working Paper 2010-09, Federal Reserve Bank of Atlanta.
  7. Gary B. Gorton, 2009. "Information, Liquidity, and the (Ongoing) Panic of 2007," NBER Working Papers 14649, National Bureau of Economic Research, Inc.
  8. Jerome L. Stein, 2011. "The Diversity of Debt Crises in Europe," Cato Journal, Cato Journal, Cato Institute, vol. 31(2), pages 199-215, Spring/Su.
  9. Christopher Mayer & Karen Pence & Shane M. Sherlund, 2009. "The Rise in Mortgage Defaults," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 27-50, Winter.
  10. Jan K. Brueckner & Paul S. Calem & Leonard I. Nakamura, 2011. "Subprime mortgages and the housing bubble," Working Papers 11-12, Federal Reserve Bank of Philadelphia.
  11. John B. Taylor, 2009. "The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong," NBER Working Papers 14631, National Bureau of Economic Research, Inc.
  12. Martin S. Feldstein, 2011. "The Euro and European Economic Conditions," NBER Working Papers 17617, National Bureau of Economic Research, Inc.
  13. Adrian Blundell-Wignall & Patrick Slovik, 2010. "The EU Stress Test and Sovereign Debt Exposures," OECD Working Papers on Finance, Insurance and Private Pensions 4, OECD Publishing.
  14. K. Alec Chrystal & Cletus C. Coughlin, 1992. "How the 1992 legislation will affect European financial services," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 62-77.
  15. Larry D. Wall, 1993. "Too-big-to-fail after FDICIA," Economic Review, Federal Reserve Bank of Atlanta, issue Jan, pages 1-14.
  16. Francisco Carballo-Cruz, 2011. "Causes and Consequences of the Spanish Economic Crisis: Why the Recovery is Taken so Long?," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 58(3), pages 309-328, September.
  17. Stephen G. Cecchetti, 2009. "Crisis and Responses: The Federal Reserve in the Early Stages of the Financial Crisis," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 51-75, Winter.
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