Walter Bagehot

Walter Bagehot edited The Economist from 1860 to 1877 and wrote "Lombard Street: A Description of the Money Market" (1873), which remains one of the most important works in central banking history. The book articulated the principle — still cited by central banks today — that during a financial panic, the central bank should lend freely, at penalty interest rates, against good collateral. This "Bagehot principle" was cited repeatedly during the 2008 financial crisis when the Fed and other central banks designed emergency lending facilities. Bagehot also wrote influentially on constitutional government. His analysis of the Bank of England's position as both a commercial competitor to other banks and a lender of last resort to the system identified the central tension in central bank design that has persisted into the modern era. Bagehot's framework distinguished between illiquidity — a temporary funding problem solvable by central bank intervention — and insolvency, which central bank lending cannot and should not address, a distinction that remains central to central bank crisis management doctrine.