Financial Crises, Contagion, and the Lender of Last Resort: A Reader

Paperback | January 15, 2002

EditorCharles Goodhart, Gerhard Illing

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Financial crises, often of an apparently contagious nature, have become more frequent over the last two decades than they were previously. The monetary authorities, especially central banks, and, in the international context, the International Monetary Fund, have had to decide how to handlethem. This has revived interest in the analysis of the role of a Lender of Last Resort (LOLR). On the one hand, such LOLR support actions have been accused of contributing to the currently increased frequency of (systemic) crises. By providing a safety net for banking activities, they are said toencourage excessive risk taking (moral hazard), thus provoking the very crises they are supposed to prevent. On the other hand, the (surprisingly) fast recovery experienced after (most of) these crises may, perhaps, be attributed to the safety net provided by LOLR facilities, which may have dampenedreal effects by containing contagion. Currently, the need for, and the appropriate design of, a LOLR both at the national and international level is hotly debated. There are fierce controversies about how to handle crisis management.This book assembles a selection of the best available studies in this field, and illuminates both sides of the debate. After a substantial review of the literature, Part I Iooks back to the historical evolution of thought on the conduct of LOLR. Parts II and III review contemporary contributions tothe debate. Part IV explores the international aspects of these issues. Overall, this Reader provides comprehensive and authoritative coverage of the contending views on how the authorities might respond to financial crises. It will appeal to a broad readership including financial and monetaryeconomists, commentators on financial subjects, (central) bankers, financial regulators, and ministries of finance.

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Financial crises, often of an apparently contagious nature, have become more frequent over the last two decades than they were previously. The monetary authorities, especially central banks, and, in the international context, the International Monetary Fund, have had to decide how to handlethem. This has revived interest in the analysi...

Charles Goodhart is Professor of Banking and Finance at the London School of Economics and Political Science. Prior to this he was Chief Adviser at the Bank of England (1980 to 1985). Gerhard Illing is Professor of Macroeconomics at the University of Munich.

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Format:PaperbackDimensions:676 pages, 9.21 × 6.14 × 1.18 inPublished:January 15, 2002Publisher:Oxford University PressLanguage:English

The following ISBNs are associated with this title:

ISBN - 10:0199247218

ISBN - 13:9780199247219

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Table of Contents

1. Charles Goodhart and Gerhard Illing: Introduction2. Xavier Freixas, Curzio Giannini, Glenn Hoggarth, and Farouk Soussa: Lender of Last Resort---a Review of the LiteratureI. Historical Analysis3. Henry Thornton: An Enquiry into the Nature and Effects of the Paper Credit of Great Britain (excerpts)4. Walter Bagehot: A General View of Lombard Street (excerpts)5. Thomas Humphrey and Robert Keleher: The Lender of Last Resort: a Historical Perspective6. Michael Bordo: The Lender of Last Resort: Alternative Views and Historical Experience7. Richard Timberlake: The Central Banking Role of Clearinghouse AssociationsII. Contemporary Analysis8. Marvin Goodfriend and Robert King: Financial Deregulation, Monetary Policy, and Central Banking9. George Kaufman: Lender of Last Resort: a Contemporary Perspective10. Fred Hirsch: The Bagehot Problem11. Robert Solow: On the Lender of Last Resort12. M. J. Flannery: Financial Crises, Payment System Problems, and Discount Window Lending (excerpts)13. Charles Goodhart: Myths about the Lender of Last ResortIII. Bank Runs and Contagion14. Olivier De Bandt and Philipp Hartmann: Systemic Risk in Banking: a Survey15. Douglas W. Diamond and Philip Dybvig: Bank Runs, Deposit Insurance, and Liquidity16. Franklin Allen and Douglas Gale: Optimal Currency Crises17. Y. Chen: Banking Panics: the Role of the First-Come, First-Served Rule and Information Externalities18. Franklin Allen and Douglas Gale: Financial Contagion19. Xavier Freixas, Bruno M. Parigi, and Jean-Charles Rochet: Systemic Risk, Interbank Relations, and Liquidity Provision by the Central BankIV. An International Lender of Last Resort?20. Forrest Capie: Can there Be an International Lender of Last Resort?21. Anna Schwartz: Earmarks of a Lender of Last Resort22. Meltzer Report of the International Financial Institution Advisory Commission (excerpts)23. R. Brealey: The Asian Crisis: Lessons for Crisis Management and Prevention24. Stanley Fischer: On the Need for an International Lender of Last Resort25. Curzio Giannini: Pitfalls in International Crisis Lending