The lender-of-last-resort function in the context of national and international financial crises

Abstract

How a financial crisis should be defined remains an open question in the literature. Kindleberger, one of the best historian scholars of financial crises [1978], indicates in his last publication on financial crises [1982, p. 2] a large divergence of opinion among economists with respect to the characteristics of a financial crisis. Goldsmith, for instance, interprets it in terms of a sharp increase in interest rates or an important decline of asset prices or in terms of a drastic rise of bankruptcy rates. Other authors like Swoboda emphasize the threat to the stability of the financial and economic system, and for others, like Mundell, a financial crisis is a convertibility test of assets into money or of one kind of money into another. Since no agreement on a precise definition can be found, Kindleberger comes to the conclusion that "perhaps a financial crisis is like a pretty girl, difficult to define but recognizable when seen'".