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The global financial crisis revealed the deficits of EMU governance and confronted the Eurozone with an existential crisis. To counter this tendency, the ECB introduced Outright Monetary Transactions and Quantitative Easing, thereby turning into the lender of last resort of EMU member states. By potentially providing EMU members with unlimited liquidity, the ECB successfully mitigated the crisis. Yet, this policy is criticised for providing opportunities for moral hazard inducing EMU members to greatly increase their public debt at the risk of EMU stability. The master thesis deems this critique, mainly deriving from ordoliberal reflections, inaccurate. Based on an analysis of the lender of last resort policies’ design, it identifies a series of countermeasures that successfully work against the occurrence of moral hazard. As at the same time, these provisions diminish the stabilising potential of the lender of last resort policies, the negative impact of excessive moral hazard critique for EMU stability becomes apparent., Die globale Finanzkrise offenbarte die Defizite der Governance der Europäischen Wirtschafts- und Währungsunion und stellte die Eurozone vor eine existenzielle Krise. Um dieser entgegenzuwirken, schuf die EZB Outright Monetary Transactions und Quantitative Easing, womit sie zum Lender of Last Resort der Mitgliedsstaaten der Eurozone wurde. Indem die EZB den Mitgliedstaaten potenziell unbegrenzt Liquidität zur Verfügung stellte, wurde die Krise erfolgreich entschärft. Nichtsdestotrotz wird diese Politik kritisiert, Moral Hazard zu ermöglichen und damit Möglichkeiten für Mitgliedstaaten zu bieten, ihre Staatsverschuldung massiv zu erhöhen. Dies gefährde die Stabilität der gesamten Eurozone. Diese Masterarbeit hält die genannte Kritik, hauptsächlich aus ordoliberalen Überlegungen stammend, für unzutreffend. Basierend auf einer Analyse der Lender-of-Last-Resort-Politik, identifiziert sie eine Reihe von Gegenmaßnahmen, welche erfolgreich gegen Moral Hazard wirken. Da diese Maßnahmen jedoch gleichzeitig das stabilisierende Potenzial der Lender-of-Last-Resort-Politik mindern, werden die negativen Auswirkungen exzessiver Moral Hazard-Kritik für die Stabilität der Eurozone deutlich.

We analyze the problem of a policy authority (PA) that must decide when to resolve a troubled bank whose underlying solvency is uncertain. Delaying resolution increases the chance that information arrives that reveals the bank's true solvency state. However, delaying resolution also gives uninsured creditors the opportunity to withdraw, which raises the cost of bailing out insured depositors. The optimal resolution date trades off these costs with the option value of making a more efficient resolution decision following the arrival of information. Providing the bank with liquidity support buys the PA time to wait for information, but increases the PA's losses if the bank is insolvent. The PA may therefore optimally choose to delay the provision of liquidity support in order to minimize its losses.

This paper contributes to the literature on moral hazard, lending of last resort and the political origins of banking crises. Drawing on newly accessed quantitative and qualitative archival sources the paper documents how a bank - Banco de Cataluña - formed a coalition with the Dictatorship of Primo de Rivera (1923-30) in order to depart from the framework of "constructive ambiguity" that characterized central bank lending of last resort in Spain. As a result, the bank developed a uniquely risky portfolio and incurred in insider lending to internationally exposed firms at the onset of the Great Depression. The fall of the Dictatorship and democratic transition, the collapse of international trade, and global deflation during 1929-31 made fragilities emerge causing the bank to fail.

The COVID-19 run on medical resources crashed Wuhan’s medical care system, a medical disaster duplicated in many countries facing the COVID-19 pandemic. In a novel approach to understanding the run on Wuhan’s medical resources, we draw from bank run theory to analyze the causes and consequences of the COVID-19 run on Wuhan’s medical resources and recommend policy changes and government actions to attenuate runs on medical resources in the future. Like bank runs, the cause of the COVID-19 medical resource run was rooted in China’s local medical resource context and a sudden realignment of expectations, reflecting shortages and misallocations of hospital resources (inadequate liquidity and portfolio composition), high level hospitals siphoning-off patients from lower level health providers (bank moral hazard and adverse selection problem), patients selecting high-level hospitals over lower-level health care (depositor moral hazard problem), inadequate government oversight and uncontrolled risky hospital behavior (inadequate bank regulatory control), biased medical insurance schemes (inadequate depositor insurance), and failure to provide medical resource reserves (failure as lender of last resort). From Wuhan’s COVID-19 run on medical resources, we recommend that control and reform by government enlarge medical resource supply, improve the capacity of primary medical care, ensure timely virus information, formulate principles for the allocation of medical resources that suit a country’s national conditions, optimize the medical insurance schemes and public health fund allocations and enhance the emergency support of medical resources.

Using a new biography of banks, we examine the stability of Irish banking from 1797 to 1826 by constructing a failure rate series. We find that the ultimate cause of the frequent and severe banking crises was the crisis-prone structure of the banking system, which was designed to benefit the political elite. There is little evidence to suggest that wildcat banking or the failure of the Bank of Ireland to act as a lender of last resort were to blame. We also find that the main economic effect of the episodic crises was major diminutions in the money supply.

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.

The latest financial crises in Europe and the United States have reminded us of the importance of the role of central banks as Lender of Last Resort. This article examines the current legal framework in the European Union with regard to the allocation of Lender of Last Resort competence, which until now has been exercised by the national central banks in the Eurozone. The new Emergency Liquidity Assistance Agreement 2017 sustains this institutional design, leaves the Emergency Liquidity Assistance competence with the national central banks and specifies the cooperation between the European Central Bank and the national central banks with regard to the veto-option of the European Central Bank to national Emergency Liquidity Assistance operations. Against this background, the paper discusses whether the current legal competence structure of the European and Monetary Union would also allow for more authority of the European Central Bank with regard to Emergency Liquidity Assistance powers. The paper concludes there is a sufficient legal basis in the monetary policy and financial stability mandate of the European Central Bank to allow it to grant Emergency Liquidity Assistance at least with regard to ‘significant’ banks, as defined under the current European Banking Supervision regime.

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.

This article investigates the classical monetary theory on bank liquidity and finance and especially the contribution of Thomas Tooke, John Stuart Mill and John Fullarton at the light of the debate on the Great Recession. These authors show how financial markets and banking system may collapse altogether after a rise of values in certain classes of securities or real estate markets. And they come to the view that competition between commercial banks creates the appearance of market discipline, while the expectation of scarcity in some specific markets leads to a speculative process, which in turn destabilizes the banking system and triggers the need for the lender of last resort.

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

Money multiplier — the concept, limitations and criticismThe article presents the money creation process in the modern economy, including the role of the central bank and commercial banks in this process. The concept of money multiplier is described and set in the context of Fed’s monetary policy since 1970s. Special attention is paid to the decrease of the M1 multiplier below the value of one, which accompanied the quantitative easing after the crisis arousal in 2008. Then, the main constraints are mentioned of commercial banks in the process of money creation impeding the full utilization of the multiplier potential: bank profitability and competitiveness, risk of bank runs, demand for currency, limitations concerning credit collaterals and those resulting from monetary policy, prudential regulations, and the behaviors of bank clients. The paper also reports on arguments critical toward the multiplier approach and suggests to perceive the money supply in the modern economy as an endogenously determined phenomenon: first, commercial banks grant as many credits thus creating money as they can owing to the market situation; then, they turn to the central bank to provide reserves. The latter provides reserves monetary base as the lender of last resort, aiming to control the interest rate, and not money quantity itself. The conclusions are significant for monetary policy and economic education, as the endogenous approach to money supply can explain why the quantitative easing, contrary to some concerns, did not automatically translate into a considerable increase of credit expansion and price inflation.

The relevance of the research subject is due to the fact that countries look for adaptive approaches to the turbulence of the international monetary system (IMS). The approaches of the BRICS countries to the IMS transformation have been fully studied in the economic literature. However, there are no researches on foundation of an advanced central bank as an alternative supranational monetary institution in the new international fnancial architecture. The article objective is to develop a mechanism for setting up the refnancing rate for the BRICS countries in case of the integration hypothesis the currency union, and the lender of last resort and the general unit of accounts. A liberal pricing method has been used to create the model. There is a hypothesis that the refnancing rate should be set at a higher level than that of the People’s Bank of China’s and lower than that of Brazil, Russia, India and South Africa’s, since it has comparative advantages in crediting. The mechanism of the consensual rate of the BRICS countries is based on the assumption that the amount of money in circulation may vary by an amount that does not cause negative consequences for national economies. The fundamental difference between the results of this study is in optimization of the credit resources flow, which implies their distribution within certain limits and in several stages. The main provisions indicate that the optimal rate may provide a background for the coordination of monetary policies in the BRICS countries within the Central bank. The practical relevance of the model is that it can be used to establish the refnancing rate in the BRICS countries. The model suggests that the optimal crediting value in the BRICS countries should ft the GDP growth limits. To conclude, the optimal refnancing rate is a key issue in forming a monetary union and a common currency in the BRICS countries.

Indonesia has managed the complex challenges of the global economy well. The country's capital outflows were smaller in 2018 than during the Taper Tantrum in 2013; the rupiah had regained most of its lost ground by January 2019; the Indonesian stock market has outperformed its peers; growth is forecast to remain stable; inflation is low; unemployment remains below its five-year average; consumer and business confidence are robust; and the government budget has improved through a smaller deficit and cheaper borrowing costs. But significant risks remain. This paper assesses these risks and evaluates the adequacy of Indonesia's crisis management framework. It finds that the framework has serious deficiencies that could see liquidity challenges become systemic solvency crises. The framework effectively removes Bank Indonesia as the lender of last resort, risks politicising the process of crisis response, and could mean slower, less effective responses to crises. This paper explores how the framework could be improved and what reforms could be undertaken to deepen Indonesia's financial system, strengthen financial resilience, and boost the long-term growth outlook.

During the global banking crisis of 2007-2009 and the Eurozone sovereign debt crisis of 2010-2012 the so called ‘TARGET2 imbalances’ attracted considerable attention. Some economists interpreted them as a symptom of the ECB’s ‘stealth bail-out’. The aim of the paper is to highlight that contrary to such claim, the emergence of TARGET2 imbalances reflected the benefits of having a mutual central bank within a monetary union which facilitated cross-border funding in spite of the global financial turbulence. The ECB’s liquidity loans to commercial banks in the Eurozone debtor countries shielded the Eurozone from a much deeper financial crisis than it actually occurred. The emergence of the TARGET 2 imbalances was actually only an accounting phenomenon resulting from the fact that these liquidity loans were technically extended by the debtor countries’ national central banks which are de facto (from the monetary policy perspective) ECB’s regional branches.

The present paper attempts to expand the existing literature on Central Bank Independence (CBI) by proposing new measures for CBI. It designs two indices: one tackling the de jure CBI and the other assessing the de facto level of CBI. The two measures outweigh traditional measures in various aspects; first, the two indices are more comprehensive in terms of possible institutional arrangements. The de jure index incorporates several aspects related to CBI that were not previously grouped together in a unified index i.e. financial independence, limitations related to indirect credit to government, accountability and transparency. The de facto index comprises the main existing indicators for measuring actual CBI (i.e. turnover ratio, political vulnerability indicator and monetary policy reaction function) in addition to new variables, as the lender of last resort function, independence of central bank board, and financial independence that were not included in almost all previous studies. Second, the two indices allow a higher level of precision as they comprise aspects that can be objectively codified with a minimum level of subjectivity. Third, the two indices cover the same attributes of CBI to facilitate measuring the deviation between de jure and de facto level of independence for any central bank. The current paper provides a comprehensive definition and analysis of both indices to enable their replication in future studies.

Walter Bagehot (1873) published his famous book, Lombard Street, almost 150 years ago. The adage “lending freely against good collateral at a penalty rate” is associated with his name and his book has always been set on a pedestal and is still considered as the leading reference on the role of lender of last resort. Nonetheless, without a clear understanding of the theoretical grounds and the institutional features of the British banking system, any interpretation of Bagehot’s writings remains vague if not misleading—which is worrisome if they are supposed to provide a guideline for policy makers. The purpose of the present paper is to determine whether Bagehot’s recommendation remains relevant for modern central bankers or whether it was indigenous to the monetary and banking architecture of Victorian times.

We consider a macroprudential approach to analyze the optimal lending policy for the central bank, focusing on spillover effects that policy exerts on money markets. Lending against high-quality collateral protects central banks against losses, but can adversely affect liquidity creation in markets since high-quality collateral gets locked up with the central bank rather than circulating in markets. Lending against low-quality collateral creates counterparty risk but can improve liquidity in markets. We illustrate the optimal policy incorporating these trade-offs. Contrary to what is generally accepted, lending against high-quality collateral can have negative effects, whereas it may be optimal to lend against low-quality collateral.

This chapter suggests that the European Central Bank´s (ECB’s) changed role over the last 10 years can be conceptualized by three modes of crisis handling: Denial, Mission Creep, and Mission Leap. The ECB was never intended to be a lender of last resort, but with the financial crisis, this was precisely what eurozone financial institutions needed. As the crisis evolved, member states themselves needed a sovereign lender of last resort, something the ECB was explicitly designed not to be. TheECB has “muddled forward” to a position of considerable strength. In terms of outcomes, the monetary union is moving forward (Scenario 3thus, “muddling through” (Scenario 2) almost seems too weak a description of the constitutionally messy process that led the ECB through the crisis.

The core concepts of price, output and inflation and expectations that underpin the credit cycle in Chapters 8 and 10 are now explained consistently using aggregate demand and supply, which is used to explain the growth of loans, and consequently, to explain the endogenous flow of the money supply with inflation, or, too much money chasing too few goods (and services). Now put this into reverse. Deflation can happen because of rapid growth of real output, but it can also be caused by the desires of commercial banks to avoid default risk, and because of the consequent loss to the economy of access to credit. The analysis here will show that in recent years, concerning the great financial crisis, the lender of last resort interventions have just about staved off economic depression, but the demand management and fiscal policies described as austerity have perpetuated the current fragility of the economy with growing income inequality. Government policy reactions to the coronavirus epidemic may renew these problems. For example, the U.K. policy of channelling financial assistance to business through commercial bank loans has been relatively slow to work, and unsuccessful. Inequality in many economies has been increased by aiding ‘standard’ jobs and businesses, but often not those in the ‘gig’ economy.

In this paper I set up a primary surplus target zone model—differently from some previous papers that used instead an interest rate target zone model— both to interpret the public debt euro area crisis and, more importantly, to draw some more general conclusions as to the role of the primary surplus in preventing speculative attacks against public debt. This primary surplus target zone model also allows considering the effects resulting from either a small or a big government. If a small government determines a higher GDP growth than a big one, then a higher steady state public debt-to-GDP level can be obtained in the first case. However, this paper shows that in the case of a credible fiscal upper target it also turns out that such a difference does not affect the size of the expectation effect determining the ‘honeymoon’. Moreover, when the primary surplus reaches its upper boundary—something that will occur inevitably, irrespective of the size of the government determining the primary surplus— monetary policy and the presence of a lender of last resort remain essential to stabilize the public debt and avoid speculative attacks.

This chapter discusses four areas of monetary theory on which the ideas of Smith and Hume have left their imprint: (1) the overissue of bank liabilities, (2) the price-specie-flow mechanism (PSFM), (3) the need for a lender of last resort in a competitive banking system, (4) real-bills doctrine and the scope of banking, and (5) rules versus discretion in monetary policy. In each of these cases, the difference between the Humean and Smithian traditions is attributable to their different interpretations of the quantity theory of money and the circumstances under which the quantity theory has empirical relevance.

This chapter provides a historical overview of the efforts for international cooperation in pursuit of financial stability. We argue that there are two fundamental threats likely to undermine the actions of an international lender of last resort (ILOLR): debtor moral hazard and creditor moral hazard. During the Pax Britannica years, the Bank of England and the Bank of France were de facto ILOLR and managed to contain both types of moral hazard. In the interwar years, the League of Nations developed new forms of last-resort loans but failed to prevent the Great Depression because of the lack of cooperation between top capital-exporting countries. Since its establishment in 1944, the International Monetary Fund (IMF) has granted various credit facilities conditioned on the recipient countries accepting macroeconomic stabilization. The financial globalization process that started in the 1980s has exacerbated creditor moral hazard. This issue, largely overlooked by the IMF, should be a major source of concern for policy makers.

Считая, что недостаточный уровень ликвидности является основной причиной финансовых затруднений, изложены различные методы управления ликвидностью: через управление активами, через управление пассивами, закрепление статей пассивов за статьями активов, а также сбалансированный метод управления активами и пассивами. Представлена возможность управления активами использованием метода линейного программирования. Показана также роль Центрального банка в управлении пассивами коммерческого банка через управления ликвидностью осуществление центральным банком регулирование денежно-кредитной сферы., Considering that an inadequate level of liquidity is the main reason for financial difficulties, various methods of liquidity management are outlined: through asset management, through liability management, assigning liabilities to assets, as well as a balanced method of managing assets and liabilities. The possibility of asset management using the linear programming method is presented. It also shows the role of the Central Bank in managing the liabilities of a commercial bank through liquidity management, the central bank's monetary regulation.

This chapter introduces the reader to unconventional monetary policy, i.e. monetary policy using instruments going beyond the steering of short-term interest rates as described in the previous chapter. We start by providing the rationale of unconventional monetary policy, i.e. essentially pursuing an effective monetary policy when conventional policies are not able to provide the necessary monetary accommodation because of the zero lower bound. We then discuss negative interest rate policies, and explain why rates slightly below zero have proven to be feasible despite the existence of banknotes. We also discuss possible unintended side-effects of negative interest rates. We continue with a discussion of non-conventional credit operations: lengthening of their duration, the use of fixed-rate full allotment, the widening of the access of counterparties to the central bank’s credit operation, targeted operations, credit in foreign currency, and widening the collateral set. Finally, we turn to the purposes and effects of securities purchase programmes. We end the chapter by revisiting the classification of central bank instruments in three categories: conventional, unconventional, and lender of last resort.

We show that lender of the last resort (LOLR) policy contributes to higher bank interconnectedness and systemic risk. Using novel micro-level data, we analyze the haircut gap channel of LOLR – the difference between the private market and central bank haircuts. LOLR increases interconnectedness by incentivizing banks to pledge higher haircut gap bonds, especially issued by similar banks and by systemically important banks. LOLR also exacerbates cross-pledging of bank bonds. Higher haircut gaps only incentivize banks, not other intermediaries without LOLR access, to increase bank bond holdings. Finally, LOLR revives bank bond issuance associated with higher haircut gaps.

This chapter examines the effects of private cryptocurrencies in dual system (conventional and Islamic), an area which has not been critically addressed in the literature. Despite the benefits of private cryptocurrencies, we highlight some challenges that private cryptocurrencies pose for financial stability. We show that the widespread use of private currencies causes a compromised payment system notably with the absence of guarantee mechanisms. Moreover, the impacts of cryptocurrencies on commercial bank activities may exacerbate financial stability risks. The loss of control over monetary policy and the lack of lender of last resort of Central Bank lead to higher exposition to systemic risk. Nevertheless, the cryptocurrency compatible with sharia can avoid many concerns and ensure better financial stability and social cohesion in a dual system.

The paper develops an early warning system to identify banks that could face liquidity crises. To obtain a robust system for measuring banks’ liquidity vulnerabilities, we compare the predictive performance of three models – logistic LASSO, random forest and Extreme Gradient Boosting – and of their combination. Using a comprehensive dataset of liquidity crisis events between December 2014 and January 2020, our early warning models’ signals are calibrated according to the policymaker's preferences between type I and II errors. Unlike most of the literature, which focuses on default risk and typically proposes a forecast horizon ranging from 4 to 6 quarters, we analyse liquidity risk and we consider a 3-month forecast horizon. The key finding is that combining different estimation procedures improves model performance and yields accurate out-of-sample predictions. The results show that the combined models achieve an extremely low percentage of false negatives, lower than the values usually reported in the literature, while at the same time limiting the number of false positives.

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. 1. Introduction 2. Toward a positive integration theory of financial globalization 3. Monetary technocrats in action: the BIS standing committee on the euro-currency market, 1971-79 4. Conclusion Archival material References

The crisis management and deposit insurance (CMDI) framework in the euro area requires a reset. Currently the framework is far more likely to manufacture a crisis rather than enable the authorities to manage one. Specifically, the current framework is far more likely to trigger the doom loop between weak banks and weak governments than to terminate or untie it. Nor will the current framework necessarily protect deposits. There is no guarantee that a euro in covered deposits will remain a euro, if the bank in which the deposit is held fails, and/or the Member State in which the failing bank is headquartered defaults. The CMDI framework aims to enhance financial stability, limit recourse to taxpayer money, promote competition and protect depositors. These policy objectives remain valid. What needs to change is the method that authorities use to achieve those objectives. First, the approach needs to integrate micro- and macro- aspects of crisis management. In particular, the approach needs to take account of the prospective roles of the European Stability Mechanism, both as a provider of credit to Member States as well as a guarantor of the Single Resolution Fund. Second, the approach needs encompass the central bank as a provider of liquidity to banks individually and to the market as a whole. Finally, the approach needs to recognize that by the time any reform proposed as a result of this review would become effective, the SRB and the significant institutions in the euro area will have completed the transition and become fully resolvable via bail-in. This affords the euro area the opportunity to reset expectations about resolution. The euro area should take this opportunity to make the crisis management and deposit insurance framework more European and more uniform. Specifically, there should be a single presumptive path for dealing with failed banks: the use of bail-in to facilitate the orderly liquidation under a solvent- wind down strategy. This will protect deposits and set the stage for the transformation of the Single Resolution Fund (SRF) into the Single Deposit Guarantee Scheme (SDGS) with a backstop from the European Stability Mechanism (ESM). In addition, measures should be taken to avoid forbearance, including the transfer of responsibility for emergency liquidity assistance (ELA) from national central banks to the ECB to create a single lender of last resort. Finally, national deposit guarantee schemes should become investors of last resort in the gone-concern capital of the failing bank. This will ensure that the orderly liquidation approach extends to all banks, including those without access to capital markets. Together, these measures would complete Banking Union, promote market discipline, avoid imposing additional burdens on taxpayers, help untie the doom loop between weak banks and weak governments, strengthen the euro and enhance financial stability.

Legal and economic aspects of the institute of the lender of last resort Abstract The master thesis deals with the legal and economic aspects of the institute of the lender of last resort, as a key institute that helps ensure the stability of financial markets. The thesis is divided into four parts. The first part is focused on the economic aspects of this institute, especially deals with the general definition of the term lender of last resort and its historical genesis, as well as the principles and forms of assistance of the lender of last resort. The key knowledge of this part is the Thornton-Bagehot doctrine of the lender of last resort. The second part of the thesis deals with the legal regulation of the lender of last resort in the Czech Republic. The third part is aimed at relevant European legislation and provides a summary of the relevant case law of the Court of Justice of the European Union, namely the cases Pringle, Gauweiler and Weiss. The fourth and final part of the thesis outlines the legal framework of this institute in the USA. The second to fourth part of the thesis also analyzes the behavior of 3 central banks (CNB, ECB and FED) in fulfilling the role of lender of last resort during the global financial crisis of 2008, the European debt crisis and the current coronavirus crisis,...