Monday, October 14, 2024
Hoover Institution | Stanford University
From “Lender of Last Resort” to “Too Big to Fail” to “Financial Market Savior”. Jeff Lacker, former President of the Federal Reserve Bank of Richmond and SOMC member presented a lengthy paper on the history of the theory and practice of Fed lending overtime, and the SOMC’s critique of the Fed’s lending practices. His paper included the evolution of ideas about the role the Federal Reserve Banks should play in credit markets. Following his analysis of the Fed’s provision of credit during the Financial Crisis and the pandemic, Lacker explained the Fed’s new lending doctrine. Discussant Amit Seru of Stanford Business School agreed with much of Lacker’s argument and argued that the Fed’s supervision of banks was too discretionary, and this dented the Fed’s credibility. Charles Calomiris critiqued Lacker’s paper, arguing that the Fed’s open market operations are not an effective countercyclical tool when systematic losses of bank equity reduce banks’ capacity to provide credit. He argued that lender of last resort policy must include many tools to respond to different shocks to the banking system. This panel was moderated by Thomas Hoenig, former President of the Federal Reserve Bank of Kansas City.
