In his insightful and comprehensive review of the lender of last resort, Paul Tucker frames the discussion as one of how to best structure the provision of liquidity reinsurance. Because banks provide liquidity insurance in the form of both demandable deposits and callable credit lines, their...

Central banks create money to lend during credit crunches, which might lead to inflation. We examine whether the two key functions of central banks - price stability and last-resort lending - conflict. We develop a nominal model of bank runs à la Diamond and Dybvig (1983) in which individuals...

One important lesson of the crisis is the need to take a systemic view of measures aimed at financial stability. Measures that enhance the stability of a single institution could be inimical to the stability of the financial system as a whole