Limit lender-of-last-resort function to reduce bailout moral hazard
Mandate would tightly limit LOLR so banks behave more prudently, with long lead time, arguing standing bailout offers encourage reckless lending and crises.
Mandate
Mandate Ch. 24 (Federal Reserve) — Broad Recommendations: limit the Federal Reserve’s lender-of-last-resort function so banks and other financial institutions behave more prudently; reform should be given plenty of lead time; curb excessive last-resort lending practices responsible for too-big-to-fail and moral hazard.
Undo plan
1) Keep emergency liquidity for systemic runs under clear penalty-rate, collateral, and congressional reporting rules (Bagehot-style).
2) Pair any LOLR narrowing with strengthened capital/resolution regimes first.
3) Distinguish depository emergency lending from ad hoc nonbank bailouts.
4) Codify GAO/Congress after-action reviews for any 13(3)-like facilities.
5) Verify: discount-window usage policies and living-will credibility.