 |
Definition of 'Lender Of Last Resort'
An institution, usually a country's central bank, that offers loans to banks or other eligible institutions that are experiencing financial difficulty or are considered highly risky or near collapse. In the U.S. the Federal Reserve acts as the lender of last resort to institutions that do not have any other means of borrowing and whose failure to obtain credit would dramatically affect the economy.
|
 |
Investopedia explains 'Lender Of Last Resort'
The lender of last resort functions both to protect individuals who have deposited funds, and to prevent panic withdrawing from banks who have temporary limited liquidity. Commercial banks usually try not to borrow from the lender of last resort because such action indicates that the bank is experiencing financial crisis.
Critics of the lender-of-last-resort methodology suspect that the safety it provides inadvertently tempts qualifying institutions to acquire more risk than necessary - since they are more likely to perceive the potential consequences of risky actions to be less severe.
|
-
They print money, they control inflation, and much, much more. All you need to know about central banks is here.
Read More »
-
Find out how the Fed manages bank reserves and this contributes to a stable economy.
Read More »
-
Search and compare the best checking and savings rates nationwide from Bankrate.com. Click Here!
Read More »
-
|
|