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What Institutional Structure for the Lender of Last Resort?


  • Itai Agur


This paper develops a game theory model to analyze the optimal structure of the Lender of Last Resort in Europe. When depositors are imperfectly informed, the indifference to international transmission displayed by national authorities has value. A centralized authority, because it internalizes externalities, faces a pooling equilibrium. It cannot effectively signal the motivation behind its interventions. This leads to unnecessary depositor scares. The first-best is achieved by delegation: the central authority decides when to retain control and when to delegate to the national authorities. Central coordination dominates pure centralization.ÂÂ

Suggested Citation

  • Itai Agur, 2009. "What Institutional Structure for the Lender of Last Resort?," DNB Working Papers 200, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:dnbwpp:200

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    References listed on IDEAS

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    Cited by:

    1. Friederike Niepmann & Tim Schmidt-Eisenlohr, 2013. "Bank Bailouts, International Linkages, and Cooperation," American Economic Journal: Economic Policy, American Economic Association, vol. 5(4), pages 270-305, November.
    2. repec:onb:oenbwp:y::i:170:b:1 is not listed on IDEAS

    More about this item


    Lender of Last Resort; Bailout; Delegation; Contagion; Centralization;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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