Lender of last resort

Common card · No. 390649

In public finance, a lender of last resort (LOLR) is a financial entity, generally a central bank, that acts as the provider of liquidity to a financial institution which finds itself unable to obtain sufficient liquidity in the interbank lending market when other facilities or such sources have been exhausted. It functions as a government guarantee of liquidity to financial institutions. Since the beginning of the 20th century, most central banks have been providers of lender of last resort facilities. The objective is to prevent economic disruption as a result of financial panics and bank runs spreading from one bank to the others due to a lack of liquidity in the first one. There are varying definitions of a lender of last resort, but a comprehensive one is that it is "the discretionary provision of liquidity to a financial institution (or the market as a whole) by the central bank in reaction to an adverse shock which causes an abnormal increase in demand for liquidity which cannot...

Read on Wikipedia · Image Artist is Elihu Vedder (1836–1923). Photographed 2007 by Carol Highsmith (1946–), who explicitly placed the photograph in the public domain., Public domain