Re-live: Monetary Guardians as Eternal Saviours in Times of Need? Talk Between Joachim Nagel and Moritz Schularick

Once taboo, now commonplace: Central banks have become the eternal saviours of last resort. When is a rescue necessary, when is it not? Bundesbank President Joachim Nagel discussed this with IfW Kiel President Moritz Schularick on 30 January.




31. JANUARY 2024

Taboo in textbooks, now commonplace in practice: when banks and financial markets are in crisis, central banks have become saviours of last resort. But when is such a rescue necessary and when is it not? And doesn’t constant rescuing lead to recklessness on the part of those involved?

We invited Bundesbank President Joachim Nagel to discuss this with the head of the Kiel Institute for the World Economy, Moritz Schularick on January 30. The discussion was moderated by Marlies Uken (ZEIT Online).

Moritz Schularick has shown in a major historical analysis spanning 400 years that central banks cannot avoid interventions. The study suggests that over time, the provision of liquidity during financial turbulence has become the most important driver of balance sheet operations. These lender-of-last-resort interventions have successfully stabilised the economy. At the same time, however, they have increased the probability of future boom-bust episodes. This is because banks that feel safe take more risks (moral hazard).

So what should we do when the next crisis approaches? And what lessons does a practitioner like the head of the Bundesbank learn from experience? This was discussed by Nagel and Schularick yesterday.

Watch the whole session here (in German)



More than a decade after the financial crisis there still seems to be something seriously wrong with the financial system. Financial markets still tend to periodically misprice risk and contribute to boom and bust cycles. A better financial system needs to discourage short-termism and speculative activity, curtail systemic risk and distribute wealth more broadly.