Citation

Discussion Paper Details

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Title: At Your Service! Liquidity Provision and Risk Management in 19th Century France

Author(s): Maylis Avaro and Vincent Bignon

Publication Date: February 2019

Keyword(s): central bank, discount window, lender of last resort and Retail and shadow banks

Programme Area(s): Economic History

Abstract: This paper uses a historical study to show a solution to the trade-off faced by central banks between providing liquidity to a broad group of financial intermediaries and the risk that this easy access may fuel moral hazard. In late 19th century the Bank of France operated a very wide discount window and used a variety of risk management techniques to effectively subdue risk-taking behaviors and to protect its balance sheet from taking any loss. This allowed agents to monetize a very diverse set of capital while limiting the risk of bail-out. We show that this effectively helped the central bank to stabilize the economy from the consequences of negative income shocks.

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Bibliographic Reference

Avaro, M and Bignon, V. 2019. 'At Your Service! Liquidity Provision and Risk Management in 19th Century France'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13556