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Lending of Last Resort and Supervision

In: The Evolution of Central Banking: Theory and History

Author

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  • Stefano Ugolini

    (University of Toulouse)

Abstract

The banking sector is inherently fragile as it is plagued by a number of market failures (especially those due to information asymmetries); its heavy regulation is justified by the large negative externalities generated by bank failures. Regulatory tools include both ex-ante interventions (legislation and supervision) and ex-post interventions (lending of last resort, bailouts, and deposit insurance). Historically, heavy regulatory frameworks featuring rule-based ex-ante interventions have prevailed in some contexts (e.g. early modern Venice and nineteenth-century United States), while light-touch regulatory frameworks featuring discretionary ex-post interventions have prevailed in other contexts (e.g. nineteenth-century Europe). The heritage of these diverging approaches is still well visible today, as national regulatory frameworks continue to differ substantially.

Suggested Citation

  • Stefano Ugolini, 2017. "Lending of Last Resort and Supervision," Palgrave Studies in Economic History, in: The Evolution of Central Banking: Theory and History, chapter 3, pages 101-163, Palgrave Macmillan.
    • Handle: RePEc:pal:palscp:978-1-137-48525-0_3
    DOI: 10.1057/978-1-137-48525-0_3
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