(Un)promising beginnings - Bagehot in the land of the waltz: financial crises and lending of last resort in the Austro-Hungarian Empire (1868-1914)

Abstract:: This dissertation analyzes the emergence of the Austro-Hungarian Bank (OeUB) as a modern lender of last resort (LLR) between 1868 and 1914. In order to evaluate policy responses to specific periods of financial distress, an in-depth knowledge of the context and dynamics at hand is indispensable. Chapter I sets the groundwork for this dissertation. It shows that bank failures during the Austro-Hungarian crisis of 1873 followed mainly from the break-down of a large repo market on the Viennes...
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Files:: Rieder_2017_Unpromising_beginnings_Bagehot.pdf

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Language:: English
Keywords:: moral hazard

lender of last resort

financial crisis

repos

banking crisis

central bank

repurchase agreements

Bagehot
Subjects:: Macroeconomics

Economic history
UUID:: uuid:5701f2df-3dda-466c-a820-3f0364e6a176
Deposit date:: 2018-06-14

Related item:: Principles, circumstances and constraints: the Nationalbank as lender of last resort from 1816 to 1931
Description:: In this study, we provide a discussion of the role the Austrian central bank played as a lender of last resort (LLR) during selected episodes of financial distress from the Nationalbank’s foundation in 1816 until the Creditanstalt crisis of 1931. Based on our evidence, we argue that free lending as advocated by British economist Walter Bagehot was historically the exception rather than the rule in Austria, and that no clear evolution toward more “free lending” is observable over time. The panic of 1912, a particularly fascinating example of a “forgotten” crisis that has never been investigated in detail, serves as our benchmark because the Nationalbank’s crisis management during this specific episode comes very close to an effective case of free lending. Instances of credit rationing during other financial crises seem to have emerged as a consequence of public doubts about the value-storing capacity of banknotes and due to a lack of discountable or pledgeable assets resulting from the Nationalbank’s regulations and/ or risk management framework. Our study echoes earlier literature in the field, underlining the importance of the microeconomics of last resort lending, including the incentive structure of lending programs and the ex ante supervision of counterparties.

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Thesis