INTERMEDIATE

Lender of Last Resort

A major function of a central bank is for it to act as “lender of last resort.” During a financial crisis, the central bank is usually expected to lend to banks that are illiquid but not insolvent. Loans from the central bank help at-risk banks avoid bankruptcy during a bank run by increasing their reserve levels. Absent a central bank, the role of lender of last resort has filled by voluntary clearing house associations.

 

Gregory Rehmke - Money and Inflation

Kahn AcademyThe Discount Rate: The discount rate and window. Lender of last resort. 

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