-
Schembri: Stress Prevention: Central Banks and Financial Stability
For the better part of the past two centuries, central banks have played an important role in the maintenance of financial stability, but primarily one of “stress or crisis management.” In particular, central banks have served as lender of last resort, providing liquidity to prevent stress from sparking contagion in solvent, but illiquid, financial institutions. But that role is starting to change. While central banks responded boldly to the global financial crisis with liquidity provision and monetary policy actions to avoid a repeat of the Great Depression, the severity of the economic fallout obliges us to ask ... (full story)