The lender of last resort function is performed by which institution?

The correct answer is - Central Bank

Key Points

• Central Bank
  • The central bank acts as the lender of last resort (LOLR) to the banking system and financial institutions.
  • This function entails providing liquidity to banks or financial institutions that are experiencing financial difficulties or are unable to obtain sufficient funds from other sources.
  • The objective is to prevent the failure of financial institutions that could lead to a broader financial crisis, ensuring stability in the financial system.
  • By acting as the LOLR, the central bank supports public confidence in the financial system.

Additional Information

• Commercial Banks
  • Commercial banks are financial institutions that accept deposits, offer checking account services, make various loans, and provide financial products like certificates of deposit (CDs) and savings accounts to individuals and businesses.
• International Monetary Fund (IMF)
  • The IMF is an international organization that aims to promote global economic growth and financial stability, encourage international trade, and reduce poverty around the world.
  • It provides financial assistance and policy advice to member countries facing economic difficulties.
• World Bank
  • The World Bank is an international financial institution that provides loans and grants to the governments of poorer countries for the purpose of pursuing capital projects.
  • It focuses on projects that aim to reduce poverty and support development.