Article Title

Solutions to the Moral Hazard Problem Arising from The Lender-of-last-resort Facility

UNDA Affiliation

yes

Abstract

The provision of liquid funds via a lender-of-last-resort facility has been the chief means by which governments have chosen to prevent or stay bank runs. The introduction of such a facility, however, leads to a moral hazard problem which weakens each financial manager’s commitment to sound banking, and hence may ultimately make the few bank runs which do occur more dramatic in both size and seriousness. In this paper I provide a survey of the various policy measures which have been proposed to mitigate the effects of the moral hazard problem arising from the introduction of a lender-of-last-resort facility.

Keywords

Peer-reviewed, lender of last resort, bank runs, moral hazard

Comments

Due to copyright restrictions the publisher's version/PDF of this article is unavailable for download.

Staff and Students of the University of Notre Dame Australia may access the full text of this article here

This article may be accessed from the publisher here

The Journal of Economic Surveys may be accessed from the National Library of Australia here

 

Link to Publisher Version (DOI)

http://doi.org/10.1111/1467-6419.00090