Who Should Act as Lender of Last Resort? An Incomplete Contracts Model
This paper presents a model of a bank subject to liquidity shocks that require borrowing from a lender of last resort. Two government agencies with different objectives may perform this function: a central bank and a deposit insurance corporation. Both agencies supervise the bank, i.e. collect nonverifiable information about its financial condition, and use this information to decide whether to support it. It is shown that the optimal institutional design involves the two agencies: the central bank being responsible for dealing with small liquidity shocks, and the deposit insurance corporation for large shocks. Furthermore, except for very small shocks, they should lend at penalty rates.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||1999|
|Date of revision:|
|Contact details of provider:|| Postal: Centro de Estudios Monetarios Y Financieros. Casado del Alisal, 5-28014 Madrid, Spain.|
Web page: http://www.cemfi.es/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:fth:cemfdt:9913. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel)
If references are entirely missing, you can add them using this form.