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Title:Optimal lender of last resort policy in different financial systems PDF Logo
Authors:Fecht, Falko
Tyrell, Marcel
Issue Date:2004
Series/Report no.:Discussion paper Series 1 / Volkswirtschaftliches Forschungszentrum der Deutschen Bundesbank 2004,39
Abstract:In a framework closely related to Diamond and Rajan (2001) we characterize different financial systems and analyze the welfare implications of different LOLR-policies in these financial systems. We show that in a bank-dominated financial system it is less likely that a LOLR-policy that follows the Bagehot rules is preferable. In financial systems with rather illiquid assets a discretionary individual liquidity assistance might be welfare improving, while in market-based financial systems, with rather liquid assets in the banks' balance sheets, emergency liquidity assistance provided freely to the market at a penalty rate is likely to be efficient. Thus, a "one size fits all"-approach that does not take the differences of financial systems into account is misguiding.
Subjects:Financial Crises
Lender of Last Resort
Comparing Financial Systems
JEL:D52
E44
G21
E52
E58
Document Type:Working Paper
Appears in Collections:Discussion Paper Series 1: Economic Studies, Deutsche Bundesbank

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