The Lender of Last Resort: Some Historical Insights

This paper discusses the role for a lender of last resort (LLR) in preventing banking panics (section I) , then briefly considers classical and more recent concepts of the LLR (section II). Section III examines historical evidence for the U.S. and other countries on the incidence of banking panics and LLR actions, and the record of alternative LLR arrangements in the U.S., Scotland and Canada, as well as the historical record on ailouts. Section IV offers some lessons from history.

Growing Up to Financial Stability

This lecture revisits the evidence on the incidence and severity of different varieties of financial crises within the context of globalization then ( pre-1914) and now ( 1980 to the present). I then discuss the determinants of emerging market crises from the perspective of the recent balance sheet approach. This approach puts at center stage the importance of financial development. I then peel the onion back further and consider the "deep" institutional determinants of financial development and their relationship to financial stability. I conclude by conjecturing about the ways countries learn from their financial crises to improve their institutions and grow up to financial stability.

The financial crisis of 1825 and the restructuring of the British financial system - commentary

Banks and banking - History ; Banks and banking - Great Britain ; Great Britain ; Financial crises - Great Britain

The lender of last resort : alternative views and historical experience

Four views on the proper role of the lender of last resort are defined. Historical evidence is given on the causes of banking panics in the U.S. and other countries and the roles lenders of last resort played in resolving them.Banks and banking - History ; Lenders of last resort ; Banks and banking, Central

A Historical Perspective on the Crisis of 2007–08

This paper provides a historical perspective on the current crisis, contrasting the old with the modern. We identify the growth of the nonbank financial sector (a shadow banking system) that was not regulated by the central bank or covered by the financial safety net as a key modern twist, compared to other crises. We also offer some lessons for monetary policy on key issues of liquidity, solvency, and the stability of the real economy.

Sudden Stops, Financial Crises, and Original Sin in Emerging Countries: Déjà vu?

The current pattern of sudden stops and financial crises in emerging markets has great resonance to events in the first era of globalization, from 1870-1913. In this paper I present descriptive statistics on capital flows, current account reversals and financial crises during the period 1870-1913 and compare them with the recent experience. I analyze the incidence of crises and measure their effects on real output losses. Furthermore, I consider the influence of openness to trade, original sin and currency mismatches on the pattern of sudden stops and financial crises. I find strikingly similar patterns across both eras of globalization. The pre-1914 sudden stops were associated with significant output losses comparable with the recent events, and their effects differed considerably depending on a country%u2019s economic circumstances, just as they do today.

Globalization and imbalances in historical perspective

Global imbalances associated with the U.S. current account deficit have given rise to speculation about the nature of the impending adjustment: Will it be smooth and gradual, or will it be sudden and costly? This paper summarizes the two views and then considers three historical periods with similar pressures--an earlier era of globalization from 1870 to 1914, the interwar gold standard, and Bretton Woods. A comparison of the periods and their outcomes suggests current global imbalances might resolve themselves quietly.Globalization ; International economic integration

The Gold Standard as a `Good Housekeeping Seal of Approval'

In this paper we argue that adherence to the gold standard rule of convertibility of national currencies into a fixed weight of gold served as a `good housekeeping seal of approval' which facilitated access by peripheral countries to foreign capital from the core countries of western Europe. We survey the historical background of gold standard adherence in the period 1870-1914 by nine important peripheral countries. The sample includes the full range of commitment to the gold standard from continuous adherence, through intermittent adherence, to non-adherence. Evidence on the pattern of long-term government bond yields suggests that long-term commitment to the gold standard mattered even when bonds were denominated in gold: countries that remained on gold throughout the classical era were charged lower rates than countries that had a mixed record of adherence. Estimation of a model analogous to the CAPM, using the differential between peripheral country rates and UK rates augmented by a list of `fundamentals' and a dummy variable to capture gold standard adherence, reveals that capital markets attached significant weight to gold standard adherence. Countries with poor adherence records were charged considerably more than those with good records, enough to explain the determined effort to stay on gold made by a number of capital importing countries.