The lender of last resort: regimes for stability and legitimacy

In the aftermath of the financial crisis financial stability considerations have become more prominent in central banks’ policies and require substantial discretion in their implementation. We argue that transparency can serve as an instrument for central banks to balance the conflicting interests of different stakeholders and manage market participants’ expectations, explain their strategy and report on its implementation progress and receive comments and feedback by stakeholders. In view of the increasingly contested concept of central banks’ independence, we show that increasing and institutionalizing ex ante and ex post transparency on policy decisions and their implementation strengthen central banks’ accountability as a key ingredient and prerequisite for their independence. Finally, we hold that central banks’ new responsibilities for financial stability call for the development of a more comprehensive and inclusive approach given their strong impact on private actors and their linkages with other policy fields and governmental agencies.