Lender of Last Resort

Abstract

The recent central banking literature often argues that the LOLR function would be the key feature defining a ‘modern’ central bank. This chapter argues that this view may appear too radical (despite the enormous benefits of the LOLR) as the appearance of the LOLR does not change the nature of central banking (which is primarily associated with the issuance of central bank money). After providing an overview of the roles of central banks for financial stability, the chapter focuses on one early LOLR episode, namely the measures of the Hamburger Bank, Bank of Amsterdam and Bank of England in the European debt crisis of 1763. It is shown that in particular the Hamburger Bank acted as systemic lender of last resort, comparable to what modern central banks did in 2008.