Emergency liquidity provision to public banks: rules versus discretion

Hauck, A ORCID: https://orcid.org/0000-0002-6949-6732 and Vollmer, U, 2013. Emergency liquidity provision to public banks: rules versus discretion. European Journal of Political Economy, 32, pp. 193-204. ISSN 0176-2680

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Abstract

This paper analyzes a government's incentives to provide financial assistance to a public bank which is hit by a liquidity shock. We show that discretionary decisions about emergency liquidity assistance result in either excessively small or excessively large liquidity injections in a wide variety of circumstances. Also, adding a lender of last resort does not generally ensure a socially optimal policy. However, optimal rules exist that align the preferences of the government and/or a lender of last resort with social preferences by either subsidizing or taxing liquidity aid.

Item Type:	Journal article
Publication Title:	European Journal of Political Economy
Creators:	Hauck, A. and Vollmer, U.
Publisher:	Elsevier
Date:	2013
Volume:	32
ISSN:	0176-2680
Identifiers:	Number Type 10.1016/j.ejpoleco.2013.07.004 DOI S0176268013000591 Publisher Item Identifier
Divisions:	Schools > Nottingham Business School
Record created by:	Jonathan Gallacher
Date Added:	22 Feb 2019 08:36
Last Modified:	22 Feb 2019 08:39
URI:	https://irep.ntu.ac.uk/id/eprint/35791

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