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Andy Mukherjee

India Should Have Learned From Walter Bagehot

The panic that followed the IL&FS debacle could have been avoided by widespread securitization.

More infrastructure: A lending disconnect.

More infrastructure: A lending disconnect.

Photographer: Anindito Mukherjee/Bloomberg

Almost 150 years later, Walter Bagehot’s advice on how to deal with a liquidity crisis still rings true. The problem, as India found out last month, is in implementing it.

Bagehot wrote in his 1873 treatise “Lombard Street” that central banks should curb panic by lending “quickly, freely and readily” to any bank that can offer “good securities” as collateral.