Banks are not Special: The Federal Safety Net and Banking Powers

  • Walker F. Todd
Part of the Innovations in Financial Markets and Institutions book series (IFMI)


The purpose of this paper is to stimulate reconsideration of fundamental principles in the debate on the restructuring of the financial services industry. Four underlying propositions are defended:
  1. 1.

    Public moneys should not be used to subsidize the risk-taking activities of depository institutions.

  2. 2.

    The lender of last resort should confine its activities to lending to support the short-term liquidity needs of depository institutions and should not engage in equity investment or capital replacement for banks or thrift institutions.

  3. 3.

    The deposit insurance laws should be strictly construed to reduce moral hazard and to avoid favoring one class of institutions or claimants over other classes.

  4. 4.

    The central bank should neither monetize the Treasury’s deficits nor make payments that either would not be made or would be made by the Treasury if the central bank did not make them.



Central Bank Federal Reserve Deposit Insurance Bank Failure Financial Service Industry 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


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© Kluwer Academic Publishers 1991

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  • Walker F. Todd

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