Monday, April 23, 2012

Bernanke, the role of the FED and Bagehot

Speaking of the Fed’s dimly remembered mission as lender of last resort to this menagerie of institutions, Bernanke told his undergraduate auditors at George Washington University,

[R]ather than being some ad hoc and unprecedented set of actions… the Fed’s response was very much in keeping with the historic role of central banks, which is to provide lender of last resort facilities in order to calm a panic. And what was different about this crisis was that the institutional structure was different. It wasn’t banks and depositors. It was broker-dealers and repo markets. It was money market funds and commercial paper but the basic idea providing short-term liquidity in order to stem a panic was very much what [Walter] Bagehot envisioned when he wrote Lombard Street in 1873

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