Turning Bagehot on His Head: Lending at Penalty Rates When Banks Can Become Insolvent

Material TypeArticleLanguageEnglish
TitleTurning Bagehot on His Head: Lending at Penalty Rates When Banks Can Become Insolvent Author(S)FABIO CAS TIGLIONESI (Author)
Abstract  Bagehot;lender of last resort;penalty rates;moral hazard Ever since Bagehot’s (1873) pioneering work, it is a widely accepted wisdom that in order to alleviate (ex ante) bank moral hazard, a lender of last resort should lend at penalty rates only. In a model in which banks are subject to shocks but can exert effort to affect the likelihood of these shocks, we show that the validity of this argument crucially relies on banks always remaining solvent ...Paginationp201–219
SubjectEconomicsDescriptorsEconomics
Journal TitleJournal of Money, Credit, and Banking  
Permanent Linksclick here