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Lastra, Rosa María --- "Concluding observations" [2018] ELECD 340; in Conti-Brown, Peter; Lastra, M. Rosa (eds), "Research Handbook on Central Banking" (Edward Elgar Publishing, 2018) 553

Book Title: Research Handbook on Central Banking

Editor(s): Conti-Brown, Peter; Lastra, M. Rosa

Publisher: Edward Elgar Publishing

ISBN: 9781784719210

Section: Chapter 27

Section Title: Concluding observations

Author(s): Lastra, Rosa María

Number of pages: 2

Abstract/Description:

The lender of last resort function of central banks has been badly neglected in policy and scholarly debates compared to its monetary-policy twin. That is a bad thing given that, when wheeled out, the LOLR profoundly affects social welfare and the incentives of financial intermediaries. This chapter outlines some of the principles that should underpin the LOLR in healthy democracies. Above all, it argues that the counterpart to the ‘no monetary financing’ edict of an independent monetary policy should be ‘no lending to fundamentally unsound firms’. This is made feasible by the advent of more credible resolution regimes for distressed and unsound firms, remedying the central banker’s curse. Beyond that vital constraint, the chapter proposes legislating a statutory purpose for the LOLR; discusses policy on collateral and lending to shadow banks; and suggests decisions should be taken by committees of equals.