March, 2015

Ben Bernanke and Bagehot's Rules

  • Thomas L. Hogan

    Fellow in Public Finance, Baker Institute Center for Public Finance, Rice University
  • Alexander Salter

    Assistant Professor of Economics, Texas Tech University
  • Linh Le

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Former Federal Reserve Chairman Ben Bernanke has claimed that the Fed's bank bailouts during the 2008 financial crisis were consistent with Walter Bagehot's rules for a lender of last resort. This paper demonstrates Bernanke's claims to be mistaken. First, we outline Bagehot's doctrine for a classical lender of last resort. Next, we discuss Bernanke's theory of bank bailouts and his statements regarding the Fed's role in the 2008 bank bailouts. Finally, we examine the bailouts and demonstrate that, contrary to Bernanke's claims, the Fed's actions were not consistent with Bagehot's rules for a lender of last resort.

Find article at Wiley Online Library.