Lender Of Last Resort Arrangements And Financial Crisis

The Lender of Last Resort (LLR) Arrangements, together with Financial Supervision and Deposit Insurance, consists of the financial net.LLR is especially vital to the process of stabilizing the financial system during the financial crisis. The aim of the paper is to compare LLR arrangements (the timing, methods, effects, moral hazards) in historical financial crisis, including the subprime financial crisis. And make a suggestion on the improvements of the LLR arrangements of China.The paper strongly believes the LLR is necessary to resolve financial crisis, and only the proper packet of LLR arrangements can effectively reduce the crisis impact on financial system.In this paper the research methods are induction and deduction, case analysis and comparative analysis. The cases include the big financial crisis in the 20th century and subprime financial crisis bursting in 2007.This paper includes five parts. Chapter one is Introduction, introducing the background of the issue, related definition and intention, content and routing of the study, chapter two the is the literature review, the research presence of the LLR theory in China and western countries, chapter three is the empirical analysis of LLR in financial crisis of the 20th century and also the recent 2007 subprime crisis, chapter four is the comparison of the Fed and IMF on LLR arrangements, chapter five also the last chapter is the analysis of the presence, problem and suggestion of the LLR arrangements of China.The conclusion of the paper are as follows:firstly, in the beginning of the crisis, LLR should immediately play its role, which not only helps to stabilize the financial system but can also reduce the cost of bailout. Secondly, it is ought to take different methods to financial institutions with and without systematic risk, open market operation and discount window can be the major way to bailout the previous one, and private sector fund would be the major source to the latter. Thirdly, the ways to solve the moral hazards including Post Transparency, conditional construction fuzzy, inviting private sector, establishing balanced rights and obligation system. Finally; the core of LLR arrangements work in China is to solve the moral hazard.