Ponce, Jorge; Rennert, Marc - In: Journal of Banking & Finance 50 (2015) C, pp. 286-297
We propose a model where systemic and non-systemic banks are exposed to liquidity shortfalls so that a lender of last resort policy is required. We find that it is socially optimal to override the decision of the central bank by the unconditional provision of liquidity support when the shortfall...