The central bank -- supposed to be the lender of the last resort -- became the lender of first and only resort!
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"As one of the chief architects of the AIG bailout, Secretary Geithner was in a position to do what any lender of the last resort would do -- negotiate concessions from AIG, " he said in a press release.
The communication difficulties between the UK Treasury, the FSA and the Bank of England during the Northern Rock crisis in 2007 illustrated some of the problems that can occur when there is incomplete co-ordination between the lender of last resort and the bank supervisor.
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The necessary steps would also involve full "mutualisation" of eurozone sovereign debt, the pooling of sovereign liabilities, which would permit the European Central Bank to be the lender of last resort to the currency union - and give the eurozone the kind of protection against the risk of default that the UK and the US have.
The first set of tools, which are closely tied to the central bank's traditional role as the lender of last resort, involve the provision of short-term liquidity to sound financial institutions.
For Labour, shadow foreign secretary Douglas Alexander said the European Central Bank (ECB) should be the lender of last resort for the eurozone and "does need to be delivering more fire power".
The plan must still be approved by Congress, but after the dust clears the Fed will not only serve as the lender of last resort to the ailing mortgage buyers but will also have a consultative role in their regulation.
At the same time there is rising frustration that Germany will not allow the ECB to print money to buy the bonds of countries in trouble and to become the lender of last resort.
As the lender of last resort, it must do more to save the banks by offering unlimited liquidity for longer duration against a broader range of collateral.
The deteriorating economic outlook and the state of high anxiety in financial markets could yet pave the way for extensive bond purchases - just don't expect them to come right now, and certainly don't expect them to come under the heading: "lender of last resort for the euro".
The IMF became the lender-of-last-resort in the crises that threatened to unravel several European economies, from Ireland to Austria, Hungary and, lately, Greece.
The fundamental public-private conflict of the GSEs means the taxpayer will always be lender of last resort to these quasi-public organizations.
No doubt the world needs a formidable lender of last resort, for which the IMF seems best suited.
For reasons I've discussed before, the feeling is the ECB cannot be a real "lender of last resort" for the eurozone if it sets a limit to the amount of money it is going to spend reducing the borrowing costs of governments such as Spain.
Both the Fed and the Bank of England have shifted away from the familiar tools of a lender of last resort providing funds freely to institutions at a penalty rate.
Either of these (preferably backed by the ECB as lender of last resort) could create a European lifesaver to prevent weak sovereigns and weak banks from drowning each other.
So the pressure mounts on Germany to agree to the ECB becoming the lender of last resort.
She is against allowing the ECB to become the lender of last resort, aka printer of money.
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Moreover, the ECB remains adamant that it cannot intervene as the lender of last resort to euro-zone sovereigns.
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Does this mean that the ECB is ruling out acting as a "lender of last resort" for the eurozone?
Morgan in the pre-Fed era, the Fed was the lender of last resort.
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The Fed is the lender of last resort, not a wholesale tinkering machine.
An even bigger concern is: who will be the lender of last resort?
Meanwhile, pressure is mounting on the Germans to allow the European Central Bank to become the lender of last resort.
The second part of the lender of last resort is that if government itself gets into debt repayment problems then you can simply print more money to pay the debts back.
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The obdurate Germans are throwing Europe into this economic chaos by refusing to allow the ECB to actually behave like a proper central bank, reflate and act like the lender of last resort.
In a way, this is natural: the Fund was established back in the 1940s precisely so that it could act, among other things, as the lender of last resort to countries in danger of default.
Rocholl added that the ECB has become a guarantor for the private and public sectors in the eurozone: "The ECB is more than a lender of last resort, not only to the banks, but also to nation-states, " he said.
Given all the criticism the ECB has been getting about its failure to be a "lender of last resort" for the Euro, you have to wonder whether Draghi wanted to remind his audience that the ECB was already playing that function, to a significant extent, in the enormous amounts of emergency liquidity it had provided periphery banks (see blog Sir Mervyn King's two messages).
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