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The analysis of Lombard Street focuses on two dimensions that have received little attention: (1) Bagehot's analysis of the systemic financial interdependencies between the functional poles of creditors and debtors in financial markets; and (2) the significance of trust and expectations in the functioning of these promise-to-pay markets. These dimensions lead us to Bagehot's well-known principles of central bank responsibility in the historical legislative-political context of the Bank Charter Act of 1844. Despite its publication 150 years ago, this book deals with the then new and still relevant finance-based interdependencies where functional roles need to be redefined and restructured. [ABSTRACT FROM AUTHOR]

After discussion of the lender of last resort before Bagehot, we turn to what Bagehot actually said about the concept, the institutions involved, and appropriate lending terms for the Bank of England in a crisis. We examine the application of "Bagehot principles" in several nineteenth, twentieth and twenty-first century episodes. By operating through the discount houses in the nineteenth century, the Bank of England was able to focus on the quality of the paper presented for discounting, rather than on the solvency of each individual bank. Emphasis was thus on the stability of the system, not of individual banks. [ABSTRACT FROM AUTHOR]

Why use a viabilistic approach to model economy? Because it is urgent to re-assess the modeling of the business cycle that integrates dynamic money creation and that has at its core the notion of constraints. The purpose of this paper is thus to propose an evolutionary economic model using a mathematical framework derived from set-valued analysis, differential inclusions and viability theory. As this approach is dynamical, the model will not use two concepts on which neo-classical economics are built i.e., (1) the existence of static repeated equilibria, (2) the optimization by an economic agent of a utility function. Furthermore, we will not use any self-organization process or "invisible hand", as in our viabilist framework the economic viability will be maintained by explicit choices of the economic agents and of the lender of last resort over the budgetary and monetary rules to apply. Indeed, even simple constraints on the second-derivative of the means of payments already induce four-phased business cycles. Coupling these constraints over the creation of means of payment with economic evolutions of prices and commodities through a budgetary constraint allows for a single formalism, tackling jointly the question of the viability of economic and monetary evolutions. [ABSTRACT FROM AUTHOR]

I propose a theoretical model of a debt contract between a sovereign and its international lenders that determines the optimal debt maturity structure and related costs. It is shaped by two financial frictions: limited liability (the country cannot guarantee that it will not dilute its obligations or default on them) and market incompleteness. In equilibrium, debt dilution constrains the amount of long-term debt issuance. I use this framework to evaluate the impact of two policy interventions: the possibility of sovereign debt restructuring with private creditors and international official lending in the event of exclusion from the international capital markets. The possibility of restructuring after default stimulates long-term debt issuance; however, in equilibrium, those tools are unable to loosen the constraint on long-term debt issuance. Consistently with the empirical literature, I find that even when these policy options are available, the country tends to issue mainly short-term debt. [ABSTRACT FROM AUTHOR]

This article traces the evolution of what has come to be called the Kindleberger-Minsky model, starting with Kindleberger’s 1978 publication of Manias, Panics, and Crashes and continuing thereafter. The key to understand the affinity of the two men, it is argued, is a shared intellectual ancestry in pre-war American institutionalism, which led to shared outsider status in the post-World War II economics academy. Both also identified with the longer tradition of monetary thought that emphasizes the inherent instability of credit, and hence the necessity for central bank management.

We show that nineteenth century central banks could use credit limits for discount loans as a means to enforce supervisory standards long before they had any formal regulatory powers. Drawing on novel microdata from the Austro–Hungarian Bank's archives, we document that credit limits were continuously monitored and that their size was contingent on counterparties' liquidity and capital position. Counterparties had an economic motive to abide by informal prudential 'rules of the game': higher credit limits enabled counterparties to streamline their day‐to‐day liquidity management. We exploit the heterogeneous exposure of counterparties to an exogenous liquidity shock to evidence that the Bank relaxed credit limits during crises to fulfil its role as a lender of last resort. [ABSTRACT FROM AUTHOR]

This paper investigates the relation between bank liquidity and borrowing from a lender of last resort on a high frequency basis during a financial crisis. The paper evaluates weekly observations of individual bank borrowing of clearinghouse loan certificates by a panel of New York Clearing House member banks during the crisis of 1884. Naturally, banks with higher reserve ratios borrowed lower amounts, but banks replaced a dollar of reserves with less than a dollar of borrowing from a lender of last resort. [ABSTRACT FROM AUTHOR]

The permanent international lender of last resort consists of a swap line network between six major central banks (C6), centring around the US Federal Reserve. Arguably, this network is a solution to a long-debated problem as it provides public emergency liquidity provision to the world's largest financial market, the Eurodollar market. Drawing on exclusive interviews with monetary technocrats as well as a textual analysis of Federal Open Market Committee meeting transcripts over the course of 14 years, we reconstruct how this facility came into being. Building on Kalyanpur and Newman (2017) and Braun (2015) , we develop an interpretive framework of bricolage to contextualise its formation: in times of crisis, central bankers rely on retrospection, experimentation and creative re-deployment to develop their tools. In non-crisis times, however, the tools that prevail are those that offer what we call 'bureaucratic familiarity': the C6 swap line network became a permanent feature of international finance because technocrats had got used to it. [ABSTRACT FROM AUTHOR]

The past two decades have seen the construction of a tiered system of international liquidity provision, the first tier including those whose credit is sufficient for a swap line with the Fed, the second tier including those who can offer acceptable collateral to the Fed, and the third tier including everyone else. It is a global dollar system, with the Fed operating de facto as the global central bank providing international lender of last resort support to the system. It is a system created not so much by conscious design, but rather as a pragmatic response to crisis, bit by bit over time.

The author argues that the idea, that the Bank of England accepted Walter Bagehot's recommendations from around the 1870s onwards and adopted the role of lender of last resort for the British financial markets, is a misconception. The published balance sheets give this impression, but a closer analysis of the balance sheet shows that the Bank of England never lost sight of the profit motive and had tied its own hands through the composition of its asset portfolio in order to be able to intervene effectively in the case of crisis. Even the only serious threat to financial market stability in the period under review, the Baring crisis of 1890, could only be mastered thanks to a broad rescue operation, coordinated solely by the Bank of England. This experience obviously did not contribute to a lasting change in the orientation of the Bank’s business policy until the First World War.

In the summer of 1931, the Austro-German banking crisis spread to Romania and Bulgaria. In the Romanian case, the management of the crisis confronted three types of protagonists – politicians, bankers and central bankers – and positions about the relevant attitude to adopt, in particular to avoid or not the Marmorosch Blank Bank bankruptcy. In Bulgaria, the management of the crisis was more consensual. The intervention of the Bulgarian National Bank allowed the refunding of the more important banks, while a further 34 were declared bankrupt and smaller ones silently disappeared. One of the largest banks in Bulgaria, Credit Bank, was rescued. Archive documents, reports of participants and comments from contemporaries, all emphasize the different conceptions of the function of lender of last resort as held by the different protagonists facing this systemic crisis.

The Latin Monetary Union (hereafter LMU) was established in 1865 between France, Italy, Belgium and Switzerland. The agreement provided for the adoption of a common monetary base consisting of specie, and the adoption of the free circulation of gold and silver coins among them, whatever the issuing country. Despite its original goal, the minting of silver coins was subject to numerous restrictions (especially between 1874 and 1876) before being fully suspended by article nine of the convention of November 5th 1878. The necessity for a lender of last resort quickly appeared in practice, even though the 1865 convention, and its numerous amendments, did not mention it in theory. The present article looks at how the idea of the lender of last resort was discussed in the context of the Latin Monetary Union. Specifically, it focuses on two opposing views on the LMU and its problems, as adopted by French economists at the time. The article concludes that the Banque de France played a crucial role in safeguarding the LMU. Referring to Bordo’s 1990 typology of lenders of last resort, we also add a fifth type, that of converter of last resort, to characterise the specific role played by the Banque de France.

Compared to the history of money and banking, the history of central banking is fairly brief and has been influenced by the development of modern nation states, by the economic environment and by technological advances. Accordingly, on-going innovations in digital technologies and the globalization of the economy are expected to have significant impacts on central banking in the future. Since all the core activities of central banking, such as the issuance of money, the operation of settlement systems, its function as lender of last resort and its monetary policy, are based upon "trust", its history has been, and its future will also be, closely linked to the most efficient framework in terms of building trust and reflecting changing technological and institutional conditions. Even though digital innovation may influence the styles of central banks in the future, the relevance and effectiveness of their payment and settlement infrastructures, their function as lenders of last resort and their monetary policies will be maintained. Besides, the need for risk-free central bank money will remain strong on account of its capacity to reduce risks in economic transactions, and central banks will have to continue making efforts to meet these demands through the enhancement of the utility of their infrastructure, including real-time gross settlement systems. Regarding central bank digital currencies, many issues require further examination. The future of central banking will be closely interlinked with that of nation states and depends on its capacity to identify the ideal mode of utilizing information and data in the economy. [ABSTRACT FROM AUTHOR]

How should history judge the euro crisis and the way it was handled? Does it qualify as a policy fiasco in the sense that it was avoidable? Or could the crisis at least have been handled in a manner which substantially reduced its destructive impact on the economic and social welfare and politics of Europe? These questions necessitate counter-factual analysis. Nevertheless, they deserve attention. How history is interpreted impacts decisions about today and tomorrow. The article explores three discourses on economic governance: on financial stability, fiscal policy and on growth. Each discourse came with pathologies: they did not sensitize decision-makers to crucial negative consequences of the policy choices they privileged at decisive points in the sequence of boom, bust and (policy engineered) painfully slow recovery. The ECB has quietly changed its ways, but unwillingness to confront the crisis head-on as a policy fiasco can obstruct learning opportunities that are important for the EU and the Eurozone going forward. [ABSTRACT FROM AUTHOR]

The actions taken by J. P. Morgan during the Panic of 1907 reveal how a skilled leader can dominate those of formal institutions during the resolution of a financial crisis. First, we examine how Morgan coordinated emergency liquidity infusions during the Panic in the absence of a formal lender of last resort (LOLR). Morgan’s Syndicate Books provide evidence that all applicants for liquidity had participated in earlier bond underwriting syndicates with Morgan. The single denial of aid was to an agent from an unprofitable syndicate, the Knickerbocker Trust. Morgan’s decisions to provide or withhold aid to distressed institutions appear to track more closely with his previous syndicate experience with each applicant. Recommendations made by committees he formed to estimate applicants’ solvency appear less important. Then, we show that Morgan’s decisions had a distinguishable effect during the Panic on the prices of bonds underwritten by his syndicates. We find that during the Panic bond traders revised upward their valuation of bonds underwritten by Morgan compared to bonds underwritten by bankers that had not undertaken LOLR activities. We interpret these results as implying that market agents had greater expectations of valuable advice or liquidity infusions to Morgan-backed issuers than to issuers backed by other bankers. These findings provide support for Morgan’s effectiveness as a mobilizer of private reserves, a private LOLR, during the Panic of 1907.

This paper constructs a theoretical model to examine the LOLR policy when a central bank can imperfectly screen insolvent from solvent banks. We find that: (1) Central bank screening produces a "positive" stigma associated with central bank borrowing by punishing insolvent banks. (2) With central bank screening, the LOLR policy in fact reduces moral hazard rather than inducing it. (3) If the central bank can better identify solvent and insolvent banks when they apply for central bank loans, it will improve social welfare first by forcing the insolvent banks to efficiently liquidate their assets and second by deterring banks from choosing the risky assets to start with. [ABSTRACT FROM AUTHOR]

This article examines the evolution of central banking in England during the 19th century. Although the Bank of England was, during the period examined in this contribution, a privatelyowned and privileged company, its money market operations (at least from 1873 onward) are always interpreted as the gradual adaption of the duties of a modern central bank, including the role as the »bankers’ bank«. The fact that it was also in competition with discount houses and commercial banks on the money market is, however, largely neglected. Contrary to conventional wisdom, this article analyses the Bank of England operations under the rationale of a utility-maximising institution which had to hide that its principal business objective was a high and stable dividend.

International political economy (IPE) has explained financial globalization as the result of states deciding to open up and liberalize domestic financial systems. Complementing this 'negative integration' view, we present a theory of financial globalization during the 1970s that emphasizes the importance of 'positive integration.' Credit money systems are characterized by public-private infrastructural entanglements, the management of which require substantial institutional work by monetary technocrats, both at the domestic and at the international level. To illustrate our theory, we trace the expansion of the Eurodollar market during the 1970s. Drawing on archival records from the 'Standing Committee on the Euro-currency Market' at the Bank for International Settlements, we show how this group of G-10 central bankers sought to elevate the management of infrastructural entanglements from the domestic to the international level. By ensuring that the Eurodollar market did not interfere with domestic monetary governability, while seeking to provide protection for issuers of Eurodollars, monetary technocrats helped establish the institutional infrastructure for the expansion and globalization of the offshore US dollar system. [ABSTRACT FROM AUTHOR]

The aim of this paper is to present the costs and benefits of applying dollarization. The most common reason for accepting, in whole or in part, a foreign currency is the presence of a high and volatile inflation rate, which is followed by the significant volatility of the exchange rate, as well as a distorted confidence in its own currency. Likewise, highly dollarized countries most often characterized by a lower level of the development of the financial market. Dollarization contributes to lowering the costs of transactions in international trade and to achieving the price and financial stability, as import inflation is lower than domestic. On the other hand, the presence of full dollarization means a loss of seigniorage as the monetary authorities’ revenue from the printing of money, as well as the limitation of the implementation of the lender’s function in the last instance. The results of the analysis indicate that, in the dollarized countries, there was a decrease in the inflation rate, macroeconomic stability was established, and financial integration was present as well. The analysis also showed that the loss of income from seigniorage, measured as a share in the gross domestic product, is not negligible, while the lender’s function in the latter instance can be compensated through the formation of stabilization funds and the conclusion of contracts with financial institutions.

In this paper I have used a framework for the analysis of public debt stability that dates back to Domar, and I have extended it in order to consider, together with the role played by the interest rate, the rate of GDP growth and domestic fiscal policy, also monetary solidarity. A special role has been reserved in the analysis to the effects of agents’ heterogeneous expectations and uncertainty. I have also considered the effects of fiscal austerity and monetary solidarity on GDP growth and interest rates, and I have concluded that the euro area crisis came to an end thanks to the latter (the former having made things even worse, if anything). Within the same framework, I have been able to discuss also some of the other proposals, including federal solidarity, that have been advanced in the literature in order to avoid or to address future euro area crises.

This paper will present a radiography of the actions taken by the Federal Reserve after thedebut of the subprime crisis. FED's reaction is very important as it served as a model for the othercentral banks, especially for the European Central Bank. The below analysis will show that FED’straditional actions as lender of last resort were not enough and FED had to come up with somenew and unconventional monetary solutions and track their impact on the US economy.

The paper concerns the reception among central bankers of Bagehot's ideas on the lender of last resort (LLR). For the period 1999–2017 we construct a database of speeches by G7 central bankers that mention Bagehot. On the basis of this database, we show that there was a boom in mentions of Bagehot during the recent financial crisis. Using the Journal of Economic Literature (JEL) codes, we indicate that this increase in the references to Bagehot among central bankers mainly relates to the idea of the LLR, and specifically the so-called Bagehot rules. However, a variety of interpretations of these rules can be observed among central bankers. We argue that these differences in interpretation can be explained by the fact that Bagehot's rules are used by central bankers either to justify, or, on the contrary, to impose limits on the liquidity injections envisaged under the unconventional monetary policies adopted in reaction to the crisis. We conclude that these diverging preferences on liquidity injections among central bankers allow us to distinguish two main "types" of receptions of Bagehot's rules: liberal versus conservative. [ABSTRACT FROM AUTHOR]

Central bank responses to COVID-19 have been extraordinary in speed, in size and in scope. Much easier monetary policy, massive liquidity provision, and targeted credit support to the real economy all played a role in stabilizing financial conditions and credit. On net, there is preliminary evidence that central bank actions have been a positive—for access to credit and for the real economy—during very trying times. But the first six months have made clear that central bank policy can only indirectly address the core economic policy challenges of the crisis, whose trajectory remains highly uncertain. The risks to the economy and financial system remain very large, and key policy questions—on the degree of fiscal policy support to the real economy, about the limits of central bank risk taking and monetization of debt, and about the wisdom of heavy reliance on central bank policies given their impact on leverage and debt levels—remain just that. [ABSTRACT FROM AUTHOR]

When a government implements an LOLR policy during a crisis, creditors can infer a bank's quality by whether the bank borrows government loans. We establish a formal model to study an LOLR policy in the presence of this signaling effect. We find that three equilibria exist: a separating equilibrium where only low quality banks borrow from the government and two pooling equilibria where both high and low quality banks do and do not borrow from the government. Further, we find that the government's lending rate serves an important signaling role and that hiding the identity of the banks that borrow government loans tends to encourage banks to do so. We also find two welfare effects of the LOLR policy: the liquidation cost saving and moral hazard. Depending on which effect dominates, the optimal LOLR policy differs. [ABSTRACT FROM AUTHOR]

Central banks use open market operations (OMOs) to adjust the liquidity available to the financial system to maintain the short-term borrowing rate within the desired target range. Using the conditional event study methodology to decompose the impact of OMOs into supply and announcement effects, this paper finds that when OMO announcements are unexpected, the decrease in the lending rate as a result of the higher supply is significantly moderated by the announcement effect. The results highlight that central banks communicate not just through signals of their desired policy stance, but also through their announcements of operations that implement the stance. • Central banks use OMOs to fine-tune liquidity supplied to the financial system • I use the conditional event study methodology to decompose the impact of OMOs • The change in lending rate due to OMOs consists of supply and announcement effects • Unexpected OMOs moderate the decrease in lending rate from increased liquidity supply • Unforeseen OMOs could reveal information about prevailing liquidity conditions • Central banks also communicate through operations that implement their policy stance [ABSTRACT FROM AUTHOR]

Researchers have pointed out that conflicts between the objectives of different bank regulators necessitate careful design of the institutional allocation of regulatory authority. In doing this, however, they often assume that regulators have incentives to share their private information regarding regulated banks. Our paper shows that the very same considerations that lead bank regulators to make different policy choices render the information sharing assumption invalid. We further show that this result has important implications for the institutional allocation of lending of last resort, deposit insurance, and bank supervision. [ABSTRACT FROM AUTHOR]

Walter Bagehot's contribution to macroeconomics in Lombard Street is misunderstood and underappreciated. To remedy this, I reinterpret his work, including his famous policy "rules," by piecing together his larger theoretical framework. That framework incorporates: (1) a "Lombard Street" economy, consisting of a permissive lending system, capitalists in need of credit, and a financial center which attracts large inflows of foreign capital; (2) a rigid policy regime built on a gold standard; and (3) a central bank with a dual objective of keeping the nation's currency convertible into gold and backstopping a crisis-prone economy. Bagehot argues that an economy with this structure is vulnerable to two distinct crises. The first is a speculative attack on the gold standard by foreigners, as they seek to convert their money into gold. And the second is a run on the credit system by nervous participants. Guided by the "right principles," Bagehot insists that an active central bank can both preserve the gold standard and prevent recurrent financial panics. JEL Classifications: B31, E58, N23 [ABSTRACT FROM AUTHOR]

I study the implications for central bank discount window stigma of a workhorse model of adverse selection in financial markets. In the model, firms (banks) need to borrow to finance a productive project. There is limited liability and firms have private information about their ability to repay their debts, which gives rise to the possibility of adverse selection. The central bank can ameliorate the impact of adverse selection by lending to firms. Discount window borrowing is observable and it may be taken as a signal of firms' credit worthiness. Under some conditions, firms borrowing from the discount window may pay higher interest rates to borrow in the market, a phenomenon often associated with the presence of stigma. I discuss these and other outcomes in detail and what they suggest about the relevance of stigma as an empirical phenomenon. [ABSTRACT FROM AUTHOR]

The aim of this paper is to present the costs and benefits of applying dollarization. The most common reason for accepting, in whole or in part, a foreign currency is the presence of a high and volatile inflation rate, which is followed by the significant volatility of the exchange rate, as well as a distorted confidence in its own currency. Likewise, highly dollarized countries most often characterized by a lower level of the development of the financial market. Dollarization contributes to lowering the costs of transactions in international trade and to achieving the price and financial stability, as import inflation is lower than domestic. On the other hand, the presence of full dollarization means a loss of seigniorage as the monetary authorities' revenue from the printing of money, as well as the limitation of the implementation of the lender's function in the last instance. The results of the analysis indicate that, in the dollarized countries, there was a decrease in the inflation rate, macroeconomic stability was established, and financial integration was present as well. The analysis also showed that the loss of income from seigniorage, measured as a share in the gross domestic product, is not negligible, while the lender's function in the latter instance can be compensated through the formation of stabilization funds and the conclusion of contracts with financial institutions. [ABSTRACT FROM AUTHOR]

Should we expect a new world crisis? This is actually the big question. The effects of the previous crises were somewhat similar. Although the most recent crisis did not bring as many failures, panic and bank failures as the Great Depression did, the potential danger was real and tangible. The danger of recurring events in 1929-1933 was very close, notably since out of the 13 strongest financial institutions in the US, 12 increased their risk of bankruptcy in just one or two weeks. The major difference between the two episodes refers to the authorities' response to the crisis. While during 1929-1933 the crisis was allowed to manifest freely, during the crisis of 2007-2009 the US Government adopted aggressive measures towards strengthening the financial sector. A number of programs aimed at recapitalizing banks and other financial intermediaries. However, the crisis and the government's inability to understand the significance and importance of the financial sector has turned the Fed into a de facto government agency, as the independence of central banks globally is now strongly undermined. As economists have learned more and more about the importance of monetary and banking leverage in both the contraction and the recovery phases of the crisis, the special importance of sound macroeconomic policies in ensuring economic stability, respectively a strong economy has been recognized. [ABSTRACT FROM AUTHOR]

Existing literature has examined the predictions and proscriptions of Karl Marx in response to the 2008 global financial crisis. However, the suggestions put forth by the Marxist-leaning literature never took hold and state-level banking and finance policies have remained largely unchanged. While many criticisms of Marxism exist, this paper examines Belarus, a ‘neo-communist’ or ‘market-socialist’ state, to provide a new perspective on the continuation of capitalism in the United States and Europe. In the case of Belarus, the International Monetary Fund and the Eurasian Economic Community's Anti-Crisis Fund provided both the critical liquidity needed to temporarily quell the effects of the financial crisis. Their demands meant that Belarus agreed to speed its move away from the Soviet-era finance and banking policies and more towards its western capitalist neighbors. Its failure to implement these policies further hurt its recovery. Examining Belarus' path to and out of its financial crisis makes apparent that the role of the international lender of last resort (LOLR). The LOLR acts as a key element in protecting states embroiled in the financial crisis from facing the possibility of making the difficult policy changes put forth by the Marxist literature. By ignoring its promises under the loan conditions from its LOLRs, Belarus moved further from the recovery promised by the Marxist suggestions.

Die deutsche Diskussion über die Europäische Währungsunion steckt in einer Empörungsfalle. Rechtsnormen und Zahlen werden ungenau und missverständlich wiedergegeben, Kausalzusammenhänge werden nicht belegt. Der Begriff des „Target-Kredits" vermengt volkswirtschaftliche und einzelwirtschaftliche Vorstellungen auf unzulässige Weise und ist analytisch unbrauchbar. Dass die Deutsche Bundesbank in ihrem operativen Geschäft nicht selbständig agiert, wird verdrängt. Eine inhaltliche Auseinandersetzung mit den Aufgaben der Zentralbank fehlt weitgehend. Die Besonderheiten eines deckungslosen Papiergelds werden nicht angemessen berücksichtigt. Die in wiederholten Verlustwarnungen enthaltene Priorisierung fiskalischer Belange ist sachlich verfehlt und ordnungspolitisch gefährlich. [ABSTRACT FROM AUTHOR]

The Bank of England's emergence as a central bank was the end of a long process that began soon after its founding in the late seventeenth century and continued until the third quarter of the nineteenth century. Its current two core principles emerged at different times. Monetary stability came first, a consequence of its responsibility for the gold standard. Financial stability followed in the course of the nineteenth century as the Bank slowly acquired the role of lender of last resort. Its mandate was a consequence of the two‐way relationship with government and some external forces. [ABSTRACT FROM AUTHOR]

This paper will present a radiography of the actions taken by the Federal Reserve after the debut of the subprime crisis. FED's reaction is very important as it served as a model for the other central banks, especially for the European Central Bank. The below analysis will show that FED's traditional actions as lender of last resort were not enough and FED had to come up with some new and unconventional monetary solutions and track their impact on the US economy. [ABSTRACT FROM AUTHOR]

Without a lender of last resort financial stability is not possible and systemic financial crises get out of control. During and after the Great Recession the US Federal Reserve System (Fed) and the European Central Bank (ECB) took on the role of lender of last resort in a comprehensive way. The Fed stabilised the financial system, including the shadow banking system. However, the chance to fundamentally restructure the financial system was not used. The ECB was confronted with sovereign debt crises and an incomplete integration of the European Monetary Union (EMU). It followed a kind of “muddling through” to keep the Euro area together. In the EMU not only a fundamental restructuring of the financial system is needed but also a deeper economic and political integration. The Fed and the ECB both were the most important institutions to avoid repetition of the 1930s.

In a response to the financial collapse of 2007-2009, central banks overstepped their narrow role of lender of last resort (LLR) and acted as dealers or market-makers of last resort (MMLR). Such an evolution of the central bank policy stems from the endogenous process of growing securities markets, financial innovations, and market-based credit intermediation. This article examines how changes in the structure of the banking and financial system transforms the central bank policy in financial stability. It considers the separation or integration of the LLR and MMLR functions, revisits the debate opposing lend-to-market and lend-toinstitution theses, and discusses the LLR standard rule and its transposition to the MMLR rule. Inasmuch as private securities markets and financial innovations determine the structure of the credit system, central banks endogenously adopt the integrated approach, so that the extensive LLR policy prevails. [ABSTRACT FROM AUTHOR]

By contrasting the four pillars of Bagehots classical theory of the Lender of Last Resort with the Basic Constitutional Act of the Central Bank of Chile (CB), the conditions of the loan are proposed. The emergency loan should have penalty rate that avoids the moral hazard of taking the risk of becoming illiquid and having the CB as a Lender of Last Resort. It is also proposed that this penalty rate could be determined by the application of the law 18.010, or by the application of a penalty tax with a fixed rate of 25.5% or 27% or with a progressive penalty rate. In both cases, the paid tax cannot be deducted as a credit against other taxes. A third alternative is presented: apply the same interest rate of the IMF. Finally, private banks cannot transfer the charged interest to the creditors. Regarding the good collateral, the proposal is to require a long-term security classified by a credit rating agency with AAA, AA o A. This is because they represent the higher capacity to pay the guaranteed capital and interested and are less affected, deteriorated or delayed for possible changes in the issuer, the industry to it belongs or the economy. Finally, an amendment to article 36.1 of the Basic Constitutional Act of the Central Bank of Chile is presented. [ABSTRACT FROM AUTHOR]

The article analyses revolutionary changes of architecture of the European banking system – creation of the European Banking Union and related introduction of a common mechanism of supervision over banking systems of member countries, creation of a common European fund of guaranteed payment of deposits to bank clients; centralisation and harmonisation of the common banking legislation. It reveals strategic importance of the said institutional transformations from the point of view of strengthening the role of supranational mechanisms of regulation and transition of the European Union to a new qualitative level of integration in economic, financial and monetary spheres. The article states that the necessity of existence of the lender of last resort in the European Union and possibilities of expansion of authorities of the European Central Bank for performance of this function within the European Banking Union are revealed in the context of strengthening financial security of EU member countries. The author emphasises that there is a threat of weakening potential of financial stability of a regional association in the event of absence of adequate multisided mechanism of co-ordination.В статье анализируются революционные изменения архитектуры европейской банковской системы – создание Европейского банковского союза и связанные с этим введение единого механизма надзора над банковскими системами стран-участниц, создание общеевропейского фонда гарантирования выплат вкладов клиентам банков; централизацию и гармонизацию единого банковского законодательства. Раскрывается стратегическое значение указанных институциональных трансформаций с точки зрения усиления роли наднациональных механизмов регулирования и перехода Евросоюза на новый качественный уровень интеграции в экономической, финансовой, монетарной сферах. Необходимость существования кредитора последней инстанции в Европейском Союзе и возможности расширения полномочий Европейского центрального банка для выполнения этой функции в рамках Европейского банковского союза раскрываются в контексте укрепления финансовой безопасности стран-участниц ЕС. Автор акцентирует внимание на угрозе ослабления потенциала финансовой устойчивости регионального объединения при отсутствии адекватного многостороннего механизма координации.