Dating the Lender of Last Resort

Abstract

We exploit a fixed rule constraining central bank credit provision in a regression discontinuity framework to analyse counterparties’ behavioural responses to the (non)receipt of liquidity during a crisis. In spring 1847, the Bank of England suddenly started rationing credit to avoid violating its gold reserve requirement. We show that counterparties which suffered rejection from the Bank were more likely to fail. Conditional on survival, rationed counterparties learned from their experience and changed behaviour during a subsequent panic in fall 1847: they came to the discount window more often, but submitted smaller requests and relied less on central bank liquidity overall.