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Unpublished Paper
Terms and conditions for central bank liquidity support
(2012)
  • Thorvald Grung Moe
Abstract

In this note I review the appropriate terms and conditions of central bank liquidity support. I first document what Bagehot actually said about lending at a penalty rate in his 1873 book. Then I review the modern discussion of the penalty rate, before ending with some policy conclusions. I note that during a systemic banking crisis it is not uncommon for central banks to provide liquidity support to banks at below market rates. This enables the banking system to recoup and eventually recover its capacity to provide essential payment services to the public.

Publication Date
Winter January, 2012
Citation Information
Thorvald Grung Moe. "Terms and conditions for central bank liquidity support" (2012)
Available at: http://works.bepress.com/thorvaldgrung_moe/3/