DP16841 Banking Regulation (Long) before Basel: Evidence from Discount Limits at the Austro-Hungarian Bank

Author(s): Clemens Jobst, Kilian Rieder
Publication Date: December 2021
JEL(s): E58, G28, N13, N23
Programme Areas: Financial Economics, Economic History
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16841

We show that central banks used credit limits for discount window loans as a means to enforce supervisory standards at a time when they had no formal regulatory powers. Drawing on novel micro data from the Austro-Hungarian Bank's archives, we document that credit limits were binding in normal times and that their size was contingent on counterparties' liquidity and capital position. We also exploit the heterogeneous exposure of counterparties to an exogenous liquidity shock to evidence that the Bank relaxed credit limits during crises to fulfill its role as a lender of last resort.