Dating the Lender of Last Resort

We exploit a fixed rule constraining central bank credit provision in a regression discontinuity framework to analyse counterparties' behavioural responses to the (non-)receipt of liquidity during a crisis. In spring 1847, the Bank of England suddenly started rationing credit to avoid violating its gold reserve requirement. We show that counterparties that suffered rejection from the Bank were more likely to fail. Conditional on survival, rationed counterparties learned from their experience and changed their behaviour during a subsequent panic in fall 1847: they came to the discount window more often, but submitted smaller requests and relied less on central bank liquidity overall.

Automated summary

This study examines the behavioral responses of counterparties to the (non-)receipt of liquidity during a crisis by exploiting a fixed rule constraining central bank credit provision in a regression discontinuity framework. The Bank of England began rationing credit in spring 1847 to avoid violating its gold reserve requirement, leading to a higher likelihood of failure for counterparties that were rejected by the Bank. Surviving counterparties that were rationed changed their behavior during a subsequent panic in fall 1847, with more frequent visits to the discount window, smaller requests, and reduced reliance on central bank liquidity overall.