Lunchtime Must-Read: Pierre-Cyrille Hautcoeur et al.: Lend Freely *at a Penalty Rate*: The Banque de France’s 1889 ‘Lifeboat’ Bank Rescue

Pierre-Cyrille Hautcoeur, Angelo Riva, and Eugene N. White: Banque de France’s 1889 ‘lifeboat’ bank rescue: “The key challenge for lenders of last resort…

…is to ameliorate financial crises without encouraging excessive risk-taking…. The lessons from the Banque de France’s successful handling of the crisis of 1889. Recognising its systemic importance, the Banque provided an emergency loan to the insolvent Comptoir d’Escompte. Banks that shared responsibility for the crisis were forced to guarantee the losses, which were ultimately recouped by large fines–notably on the Comptoir’s board of directors. This appears to have reduced moral hazard–there were no financial crises in France for 25 years…