This paper presents a model of a bank subject to liquidity shocks that requ
ire borrowing from a lender of last resort. Two government agencies may per
form this function: a central bank and a deposit insurance corporation. The
agencies share supervisory information, which provides a nonverifiable sig
nal of the bank's financial condition, and use it to decide whether to supp
ort it. It is shown that the optimal institutional design involves the two
agencies: the central bank dealing with small liquidity shocks, and the dep
osit insurance corporation with large shocks. Furthermore, except for very
small shocks, they should lend at penalty rates.