Bagehot’s cautions merit repetition, times have changed the world moved away from the gold standard to paper currencies that now function in constant competition. This work can be summarized with three concepts: (1) banks should always carry sufficient reserves, (2) the central bank – in this case the Bank of England – should loan against “all good banking securities, and as largely as the public ask for them,” and (3) a sufficiently high rate of interest should be charged against loans to “operate as a heavy fine on unreasonable timidity, and will prevent the greatest number of applications by persons who do not require it.” Lombard Street is an early call for prudent national banking policies, especially regarding the provision of liquidity during a financial panic.
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