Press Release
The ECB and its role as lender of last resort during the crisis
Speech by Peter Praet, Member of the Executive Board of the ECB, at the Committee on Capital Markets Regulation conference on The lender of last resort – an international perspective
Washington DC, 10 February 2016
Ladies and gentlemen,
Since tensions emerged in the interbank market in August 2007, central banks have been at the forefront – and centre – of the response to the financial crisis. Such prominence is directly linked to their ability to create liquidity for the entire financial system as well as solvent individual banks experiencing funding difficulties and to a central bank’s function as lender of last resort (LOLR).
This distinctive role was first identified more than two centuries ago by Henry Thornton (1802) and elaborated on 70 years later by Walter Bagehot (1873). According to their dictum, central banks should lend freely to solvent but illiquid firms against good collateral, at a high rate of interest (Tucker, 2014). While much has changed in the intervening period, these overarching principles have influenced central banks ever since.