ECON 1011 Lecture Notes - Lecture 2: Walter Bagehot
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ECON 1011 Full Course Notes
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Bank of england was doing a lot of this type of activity and they became very good at it. And as we"ll see, while the united states was suffering with banking panics in the latter part of the 19th century, banking panics in the united kingdom were quite rare. Financial panic: loss of confidence in an institution, could lead to a crash in the economy, great depression (lost faith in banks) Walter bagehot: during a panic, the central bank should lend freely, whoever come to your door as long as they collateral, give them money, this is during a banking panic. So again, if you follow bagehot"s rule, you can stop financial panics. As a central banker, provide that short-term liquidity and avoid the collapse or at least the serious stress on the system. So again, using the assets as collateral, banks borrow from the central bank.
