A liquidity backstop for banks has academic backing but how is this extra money to be withdrawn?
Walter Bagehot became editor of The Economist in 1860. As an editor, he witnessed the failure of financial firms in London, turning these experiences into a book titled Lombard Street. The central point of this book was: “In wild periods of alarm, one failure makes many, and the best way to prevent the derivative failures is to arrest the primary failure which causes them." This failure was to be prevented by the Bank of England by lending freely and becoming the lender of last resort.