Lender of Last Resort
A central bank’s role in offering emergency funds to banks facing crisis.
Detailed Description
Lender of Last Resort
What is the primary function of a Lender of Last Resort?
The primary function is to provide emergency liquidity to financial institutions facing temporary cash shortages to prevent systemic collapse.
What are some eligibility criteria for institutions seeking assistance from a Lender of Last Resort?
Institutions typically must be solvent, provide acceptable collateral, and comply with relevant regulations.
How does a Lender of Last Resort impact financial stability?
It mitigates panic, encourages risk management, and preserves trust in the financial system.
What are some criticisms of the Lender of Last Resort concept?
Criticisms include moral hazard, inequality in support for institutions, and potential market distortions.
Which institutions are examples of Lenders of Last Resort?
Examples include the Federal Reserve, the European Central Bank, and the Bank of England.