Markets · 6 pages · 12 min
How a lender of last resort is a role
A lender of last resort supplies cash to solvent banks when private funding has stopped.
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From the opening
A lender of last resort is a role, usually played by a central bank, that lends to banks when private funders will not. The lending is meant to replace funding that vanished in a scramble, so a bank with decent assets is not forced to sell them at once to pay depositors. The opening covers lend when private funding stops, collateral and repayment define it, and a high rate keeps it last.
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Inside
- Lend when private funding stops
- Collateral and repayment define it
- A high rate keeps it last
- Insolvency sits outside the role
- Where the idea stops applying
- A distinction worth keeping
Sources
- Bagehot lender of last resort
- Central-bank emergency liquidity assistance