Research Handbook on Central Banking
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Research Handbook on Central Banking

Edited by Peter Conti-Brown and Rosa M. Lastra

Central banks occupy a unique space in their national governments and in the global economy. The study of central banking however, has too often been dominated by an abstract theoretical approach that fails to grasp central banks’ institutional nuances. This comprehensive and insightful Handbook, takes a wider angle on central banks and central banking, focusing on the institutions of central banking. By 'institutions', Peter Conti-Brown and Rosa Lastra refer to the laws, traditions, norms, and rules used to structure central bank organisations. The Research Handbook on Central Banking’s institutional approach is one of the most interdisciplinary efforts to consider its topic, and includes chapters from leading and rising central bankers, economists, lawyers, legal scholars, political scientists, historians, and others.
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Chapter 27: Concluding observations

Rosa María Lastra

Abstract

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.

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