[go: up one dir, main page]
More Web Proxy on the site http://driver.im/
IDEAS home Printed from https://ideas.repec.org/p/bku/doctra/2012004.html
   My bibliography  Save this paper

Systemic banks and the lender of last resort

Author

Listed:
  • Jorge Ponce

    (Banco Central del Uruguay)

  • Marc Rennert

    (Deutsche Bundesbank and IAE Toulouse)

Abstract
We propose a model whereby systemic and non-systemic banks are exposed to liquidity shortfalls such that a lender of last resort policy is required. We analyze the optimal allocation of lender of last resort responsibilities and find that it is socially optimal to move responsibilities from the central bank to an unconditional bailout rule when the shortfall is large enough. The existence of systemic banks provides a rationale for the central bank to act as lender of last resort for non-systemic banks in a larger range of their liquidity shortfalls. However, the impact of considering systemic risk on the optimal allocation of the lender of last resort responsibilities for systemic banks is ambiguous.

Suggested Citation

  • Jorge Ponce & Marc Rennert, 2012. "Systemic banks and the lender of last resort," Documentos de trabajo 2012004, Banco Central del Uruguay.
    • Handle: RePEc:bku:doctra:2012004
    as

    Download full text from publisher

    File URL: https://www.bcu.gub.uy/Estadisticas-e-Indicadores/Documentos%20de%20Trabajo/4.2012.pdf
    File Function: First version, 2012
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kahn, Charles M. & Santos, Joao A.C., 2005. "Allocating bank regulatory powers: Lender of last resort, deposit insurance and supervision," European Economic Review, Elsevier, vol. 49(8), pages 2107-2136, November.
    2. repec:bla:intfin:v:2:y:1999:i:3:p:339-60 is not listed on IDEAS
    3. Jean-Charles Rochet & Xavier Vives, 2004. "Coordination Failures and the Lender of Last Resort: Was Bagehot Right After All?," Journal of the European Economic Association, MIT Press, vol. 2(6), pages 1116-1147, December.
    4. Tirole, Jean, 1994. "The Internal Organization of Government," Oxford Economic Papers, Oxford University Press, vol. 46(1), pages 1-29, January.
    5. Viral V. Acharya & Lasse H. Pedersen & Thomas Philippon & Matthew Richardson, 2017. "Measuring Systemic Risk," The Review of Financial Studies, Society for Financial Studies, vol. 30(1), pages 2-47.
    6. Fabio Castiglionesi & Wolf Wagner, 2012. "Turning Bagehot on His Head: Lending at Penalty Rates When Banks Can Become Insolvent," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(1), pages 201-219, February.
    7. repec:fip:fedhpr:y:2010:i:may:p:65-71 is not listed on IDEAS
    8. Repullo, Rafael, 2000. "Who Should Act as Lender of Last Resort? An Incomplete Contracts Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 580-605, August.
    9. Allen, Franklin & Carletti, Elena & Gale, Douglas, 2009. "Interbank market liquidity and central bank intervention," Journal of Monetary Economics, Elsevier, vol. 56(5), pages 639-652, July.
    10. Mathias Dewatripont & Jean Tirole, 1994. "The prudential regulation of banks," ULB Institutional Repository 2013/9539, ULB -- Universite Libre de Bruxelles.
    11. Viral V. Acharya & Tanju Yorulmazer, 2008. "Cash-in-the-Market Pricing and Optimal Resolution of Bank Failures," The Review of Financial Studies, Society for Financial Studies, vol. 21(6), pages 2705-2742, November.
    12. Freixas, Xavier & Parigi, Bruno M & Rochet, Jean-Charles, 2000. "Systemic Risk, Interbank Relations, and Liquidity Provision by the Central Bank," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 611-638, August.
    13. Flannery, Mark J, 1996. "Financial Crises, Payment System Problems, and Discount Window Lending," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 804-824, November.
    14. Adam Copeland & Antoine Martin & Michael Walker, 2014. "Repo Runs: Evidence from the Tri-Party Repo Market," Journal of Finance, American Finance Association, vol. 69(6), pages 2343-2380, December.
    15. Viral V. Acharya & Ouarda Merrouche, 2013. "Precautionary Hoarding of Liquidity and Interbank Markets: Evidence from the Subprime Crisis," Review of Finance, European Finance Association, vol. 17(1), pages 107-160.
    16. Xavier Freixas & Jos… Jorge, 2008. "The Role of Interbank Markets in Monetary Policy: A Model with Rationing," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(6), pages 1151-1176, September.
    17. Kahn, Charles M. & Santos, Joao A. C., 2006. "Who Should Act as Lender of Last Resort? An Incomplete Contracts Model: A Comment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(4), pages 1111-1118, June.
    18. Ponce, Jorge, 2010. "Lender of last resort policy: What reforms are necessary?," Journal of Financial Intermediation, Elsevier, vol. 19(2), pages 188-206, April.
    19. Marvin Goodfriend & Robert G. King, 1988. "Financial deregulation, monetary policy, and central banking," Economic Review, Federal Reserve Bank of Richmond, vol. 74(May), pages 3-22.
    20. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 24(Win), pages 14-23.
    21. Frederic S. Mishkin, 2011. "Over the Cliff: From the Subprime to the Global Financial Crisis," Journal of Economic Perspectives, American Economic Association, vol. 25(1), pages 49-70, Winter.
    22. Jean-Charles Rochet & Jean Tirole, 1996. "Interbank lending and systemic risk," Proceedings, Board of Governors of the Federal Reserve System (U.S.), pages 733-765.
    23. Marco A Espinosa-Vega & Mr. Rafael Matta & Mr. Charles M. Kahn & Mr. Juan Sole, 2011. "Systemic Risk and Optimal Regulatory Architecture," IMF Working Papers 2011/193, International Monetary Fund.
    24. C.A.E. Goodhart, 1999. "Myths about the Lender of Last Resort," International Finance, Wiley Blackwell, vol. 2(3), pages 339-360, November.
    25. Gorton, Gary & Metrick, Andrew, 2012. "Securitized banking and the run on repo," Journal of Financial Economics, Elsevier, vol. 104(3), pages 425-451.
    26. Rochet, Jean-Charles, 2004. "Macroeconomic shocks and banking supervision," Journal of Financial Stability, Elsevier, vol. 1(1), pages 93-110, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gary B. Gorton & Guillermo L. Ordoñez, 2014. "How Central Banks End Crises," PIER Working Paper Archive 14-025, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    2. Gary Gorton & Guillermo Ordoñez, 2020. "Fighting Crises with Secrecy," American Economic Journal: Macroeconomics, American Economic Association, vol. 12(4), pages 218-245, October.
    3. Gary Gorton & Guillermo Ordoñez, 2016. "Fighting Crises," NBER Working Papers 22787, National Bureau of Economic Research, Inc.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Huberto M. Ennis, 2016. "Models of Discount Window Lending: A Review," Economic Quarterly, Federal Reserve Bank of Richmond, issue 1Q, pages 1-50.
    2. Ponce, Jorge, 2010. "Lender of last resort policy: What reforms are necessary?," Journal of Financial Intermediation, Elsevier, vol. 19(2), pages 188-206, April.
    3. Makoto (M.) Watanabe & Tarishi Matsuoka, 2019. "Banking Panics and the Lender of Last Resort in a Monetary Economy," Tinbergen Institute Discussion Papers 19-002/V, Tinbergen Institute.
    4. Jorge Ponce & Magdalena Tubio, 2010. "Estabilidad financiera: conceptos básicos," Documentos de trabajo 2010004, Banco Central del Uruguay.
    5. Tarishi Matsuoka & Makoto Watanabe, 2023. "A Monetary Equilibrium with the Lender of Last Resort," CESifo Working Paper Series 10439, CESifo.
    6. Xavier Freixas, 2009. "Monetary policy in a systemic crisis," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 25(4), pages 630-653, Winter.
    7. Eijffinger, Sylvester & Nijskens, Rob, 2011. "Complementing Bagehot: Illiquidity and insolvency resolution," CEPR Discussion Papers 8603, C.E.P.R. Discussion Papers.
    8. Agur, Itai, 2014. "Bank risk within and across equilibria," Journal of Banking & Finance, Elsevier, vol. 48(C), pages 322-333.
    9. Rob Nijskens & Sylvester Eijffinger, 2011. "The Lender of Last Resort: Liquidity Provision versus the Possibility of Bailout," Chapters, in: Sylvester Eijffinger & Donato Masciandaro (ed.), Handbook of Central Banking, Financial Regulation and Supervision, chapter 4, Edward Elgar Publishing.
    10. Agur, Itai, 2014. "Bank risk within and across equilibria," Journal of Banking & Finance, Elsevier, vol. 48(C), pages 322-333.
    11. Itai Agur, 2009. "What Institutional Structure for the Lender of Last Resort?," DNB Working Papers 200, Netherlands Central Bank, Research Department.
    12. Heider, F. & Hoerova, M. & Holthausen, C., 2009. "Liquidity Hoarding and Interbank Market Spreads : The Role of Counterparty Risk," Discussion Paper 2009-40 S, Tilburg University, Center for Economic Research.
    13. Rajkamal Iyer & José-Luis Peydró, 2011. "Interbank Contagion at Work: Evidence from a Natural Experiment," The Review of Financial Studies, Society for Financial Studies, vol. 24(4), pages 1337-1377.
    14. Heider, Florian & Hoerova, Marie & Holthausen, Cornelia, 2015. "Liquidity hoarding and interbank market rates: The role of counterparty risk," Journal of Financial Economics, Elsevier, vol. 118(2), pages 336-354.
    15. Xavier Freixas & Bruno Maria Parigi, 2008. "Lender of Last Resort and Bank Closure Policy," CESifo Working Paper Series 2286, CESifo.
    16. Santos, João A.C. & Suarez, Javier, 2019. "Liquidity standards and the value of an informed lender of last resort," Journal of Financial Economics, Elsevier, vol. 132(2), pages 351-368.
    17. Elena Carletti & Agnese Leonello, 2019. "Credit Market Competition and Liquidity Crises," Review of Finance, European Finance Association, vol. 23(5), pages 855-892.
    18. Bednarek, Peter & Dinger, Valeriya & von Westernhagen, Natalja, 2015. "Fundamentals matter: Idiosyncratic shocks and interbank relations," Discussion Papers 44/2015, Deutsche Bundesbank.
    19. Rafael Repullo, 2005. "Liquidity, Risk Taking, and the Lender of Last Resort," International Journal of Central Banking, International Journal of Central Banking, vol. 1(2), September.

    More about this item

    Keywords

    systemic banks; systemic risk; lender of last resort policy;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bku:doctra:2012004. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Biblioteca Especializada (email available below). General contact details of provider: https://edirc.repec.org/data/bcugvuy.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.