Bank liquidity risk from John Law (1705) to Walter Bagehot (1873)
de Boyer des Roches, Jérôme (2013), Bank liquidity risk from John Law (1705) to Walter Bagehot (1873), European Journal of the History of Economic Thought, 20, 3. 10.1080/09672567.2011.653878
TypeArticle accepté pour publication ou publié
Journal nameEuropean Journal of the History of Economic Thought
Taylor & Francis
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Author(s)de Boyer des Roches, Jérôme
Abstract (EN)By granting credit and issuing money, banks take a liquidity risk that is to say the risk of being unable to reimburse its notes in coins. Four different explanations of a bank liquidity crisis have been provided by different authors, since John Law and up to Walter Bagehot. First, according to Law (1703) and Steuart (1767), the distinction between money of account (the pound sterling) and money of payment (the guinea) may induce a bank run. Second, according to Cantillon (1730), Hume (1752), Ricardo (1810-1823) and the Currency School (1836-1844), the bank reserve becomes insufficient as a consequence of over issues. Third, according to Smith (1776) and the Banking School (1844-1848), discounting of fictitious bills, by decreasing the shareholders’ funds, leads to banking illiquidity. Lastly, according to Thornton (1802) and Bagehot (1873), the liquidity crisis is a consequence of panics: a “flight” to money for Thornton, a “flight” to credit for Bagehot. The analysis of these four different explanations gives a new light on classical monetary controversies.
Subjects / KeywordsReal bills doctrine; Coined money; Bank credit risk; Bank exchange risk; Money of account; Shareholders’ funds; Bank liquidity risk; Run; Money market; Currency market
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