Edited by Philip Arestis and Malcolm Sawyer
Michael Knittel, Sybille Sobczak and Peter Spahn Introduction The lender of last resort (LLR) is an agent or institution who is active, or is called on for help, in the credit market; but the main reason for its prominent status in the history of banking and monetary policy is that its activities are closely intertwined with the preservation of the use and function of money. The emergence of money from the banking business linked the microeconomic question of preventing a (banking) ﬁrm’s bankruptcy with the macroeconomic topic of the stability of the monetary order. Opinions and norms that have been elaborated to guide the proper execution of LLR tasks reﬂect institutional peculiarities of historical stages in the ﬁeld of (central) banking. Therefore, ‘classical’ theories of the LLR have to be studied in order to understand why these ﬁndings cannot safely be taken as a cornerstone of a modern approach of the LLR problem. Designing such an approach is further complicated by the fact that in recent years LLR help was also demanded by, and given to, non-bank ﬁnancial ﬁrms and even to countries which suﬀered from ﬁnancial stress or debt overload.1 In all these cases, the crucial question is how to reconcile two basic economic goals: warding oﬀ economywide large losses of wealth, production and employment, which might accrue from the downfall of a single, albeit large market agent; and preserving the credibility of the ‘constitutional’ law of the market system – economic losses should be borne individually – which...
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