Deposit Insurance and Lender of Last Resort Functions

Posted: 31 Jul 2000

See all articles by Christopher M. Sleet

Christopher M. Sleet

Carnegie Mellon University - David A. Tepper School of Business

Bruce D. Smith

University of Texas at Austin (Deceased)

Abstract

We consider issues concerning the design of a banking system "safety net" when both a deposit insurer and a lender of last resort are present. In our model both entities have a role to play. Moreover, issues related to deposit insurance pricing are relatively unimportant in this context, whereas issues related to discount window access and pricing are not. We discuss when and why (or why not) a lender of last resort should lend liberally but charge high rates of interest. And, we raise the possibility that discount window policy may enhance or reduce the scope for multiplicity of equilibria.

JEL Classification: G21, G28

Suggested Citation

Sleet, Christopher M. and Smith, Bruce D., Deposit Insurance and Lender of Last Resort Functions. Journal of Money, Credit and Banking, Vol. 32, No. 3, Part II, August 2000 "What Should Central Banks Do?": A conference sponsored by the Federal Reserve Bank of Cleveland, Oct. 27-29, 1999, Joseph G. Haubrich, Special Issue Editor, Available at SSRN: https://ssrn.com/abstract=228981

Christopher M. Sleet (Contact Author)

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

HOME PAGE: http://business.tepper.cmu.edu/display_faculty.aspx?id=244

Bruce D. Smith

University of Texas at Austin (Deceased)

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