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At Your Service! Liquidity Provision and Risk Management in 19th Century France

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  • Avaro, Maylis
  • Bignon, Vincent

Abstract

This paper uses a historical study to show a solution to the trade-off faced by central banks between providing liquidity to a broad group of financial intermediaries and the risk that this easy access may fuel moral hazard. In late 19th century the Bank of France operated a very wide discount window and used a variety of risk management techniques to effectively subdue risk-taking behaviors and to protect its balance sheet from taking any loss. This allowed agents to monetize a very diverse set of capital while limiting the risk of bail-out. We show that this effectively helped the central bank to stabilize the economy from the consequences of negative income shocks.

Suggested Citation

  • Avaro, Maylis & Bignon, Vincent, 2019. "At Your Service! Liquidity Provision and Risk Management in 19th Century France," CEPR Discussion Papers 13556, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:13556
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    References listed on IDEAS

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    Cited by:

    1. Bignon, Vincent & Flandreau, Marc, 2018. "The Other Way: A Narrative History of the Bank of France," CEPR Discussion Papers 13138, C.E.P.R. Discussion Papers.
    2. Louis-Marie HARPEDANNE DE BELLEVILLE, 2019. "La Médiation du crédit : 10 ans au service des entreprises et de l’économie," Bulletin de la Banque de France, Banque de France, issue 225.

    More about this item

    Keywords

    central bank; discount window; lender of last resort; Retail and shadow banks;

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • N13 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: Pre-1913

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