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A lender of last resort is a financial institution, such as a nation’s central bank, that provides economic relief by bankrolling failing financial infrastructures. A lender of last resort does so by making loans to banks and other qualified institutions. The purpose of the lender of last resort is to alleviate a situation in which banks face immense withdrawals cased by panic and fear of the unknown. As such, the lender of last resort offers protection to individuals and provides an economic boost to banks at times of grave financial instability. In the United States the Federal Reserve acts as the lender of last resort. Conditions that call for functions of the lender of last resort can arise from any economically destabilizing occurrences. Thus, a lender of last resort may step in times of war, natural disasters, economic depression, etc. |
