Journal Article

Financial Structure Changes and the Central Bank Policy

Le Maux, Laurent

2017

Overview

In a response to the financial collapse of 2007-2009, central banks overstepped their narrow role of lender of last resort (LLR) and acted as dealers or market-makers of last resort (MMLR). Such an evolution of the central bank policy stems from the endogenous process of growing securities markets, financial innovations, and market-based credit intermediation. This article examines how changes in the structure of the banking and financial system transforms the central bank policy in financial stability. It considers the separation or integration of the LLR and MMLR functions, revisits the debate opposing lend-to-market and lend-to-institution theses, and discusses the LLR standard rule and its transposition to the MMLR rule. Inasmuch as private securities markets and financial innovations determine the structure of the credit system, central banks endogenously adopt the integrated approach, so that the extensive LLR policy prevails.

• Publisher: Routledge,Taylor & Francis, Ltd,Taylor & Francis Ltd,Wiley
• Subject: Banking / banking structure / Capital structure / central banking / Central banks / Credit / Economic models / Economics and Finance / Endogenous / financial crisis / Financial systems / funding liquidity / Humanities and Social Sciences / Innovations / Integrative approach / lender of last resort / market liquidity / market-maker of last resort / Markets / Monetary policy / Policy making / Securities markets / Transposition